-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, j+btB4enTjlck63Bu0gdsghKsExC945p6X/WflI0fAkOw/RArPzDaWvko8plMAKE iMhNfjRAzI3KqiiRr6PvLw== 0000950130-94-000565.txt : 19940404 0000950130-94-000565.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950130-94-000565 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTOCOR INC CENTRAL INDEX KEY: 0000708823 STANDARD INDUSTRIAL CLASSIFICATION: 2835 IRS NUMBER: 232117202 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-11103 FILM NUMBER: 94519844 BUSINESS ADDRESS: STREET 1: 200 GREAT VALLEY PKWY CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 2156516000 MAIL ADDRESS: STREET 1: 200 GREAT VALLEY PARKWAY CITY: MALVERN STATE: PA ZIP: 19355 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 -------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ______________ Commission file number _______0-11103_________________________ ------- CENTOCOR, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Pennsylvania 23-2117202 -------------------- ------------------- (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 200 Great Valley Parkway, Malvern, PA 19355 ------------------------------------- ------------ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 651-6000 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED None Not Applicable ------------------- ------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Series A Preferred Stock Purchase Rights ---------------------------------------- (TITLE OF CLASS) Common Stock, par value $.01 per share -------------------------------------- (TITLE OF CLASS) Warrants for the purchase of shares of Common Stock, par value $.01 per share* -------------------------------- (TITLE OF CLASS) 7 1/4% Convertible Subordinated Notes Due February 1, 2001 ---------------------------------------------------------- (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the 43,332,243 shares of voting stock held by non-affiliates of the registrant as of March 1, 1994 was $460,405,082. Common Stock outstanding at March 1, 1994: 43,786,274 shares. *Includes Warrants issued in July and August 1989 which were registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 as part of Units, each Unit consisting of one share of Callable Common Stock of Tocor, Inc. and one Warrant, and Warrants issued in January 1992 which were registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 as part of Units, each Unit consisting of one share of Callable Common Stock of Tocor II, Inc., one Series T Warrant and one callable Warrant. PART I Item 1. Business - ----------------- GENERAL Centocor, Inc. ("Centocor" or the "Company") is a biopharmaceutical company specializing in the development and commercialization of monoclonal antibody- based products to meet critical human health care needs. Additionally, the Company performs research activities in the field of small peptide molecule- based pharmaceutical products. See "Business - Research and Development." The Company focuses on four major disease areas - infectious, cardiovascular and autoimmune diseases and cancer. The Company's therapeutic products under development include CentoRx, a product intended to treat or prevent the formation of blood clots in the cardiovascular system; Panorex, a product intended to treat colorectal cancer; CenTNF, a product targeted for the treatment of rheumatoid arthritis and inflammatory bowel diseases such as Crohn's disease; and HA-1A, a product intended for the treatment of patients with severe sepsis who are dying from endotoxemia. CentoRx is being developed by Centocor for Centocor Partners III, L.P. ("CPIII"). See "Business - Research and Development." For a further discussion of CentoRx, Panorex, CenTNF and HA- 1A, see "Products - Pharmaceutical Products." Other therapeutic products are also under development. The Company's imaging products include Myoscint, a cardiac imaging agent, and other contrast agents under development for use in in-vivo diagnostic imaging procedures. The Company has also developed a number of in-vitro diagnostic products which have generated substantially all of its product sales to date. Centocor has not received marketing approval from the U.S. Food and Drug Administration ("FDA") for any of its pharmaceutical products. One of the Company's in-vitro diagnostic products, CA 125, has received FDA approval. Since 1992, the Company has been implementing a business plan employing a collaborative strategy utilizing, among other things, alliances with established pharmaceutical companies. See Part II Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Part II Item 8 "Financial Statements and Supplementary Data." In the diagnostic area, Centocor has maintained distribution agreements with companies having established positions and distribution networks in applicable market segments. In conjunction with its business plan, Centocor eliminated its European and United States sales force and established collaborative arrangements in the pharmaceutical area in 1992 and 1993. Centocor expects to continue to pursue collaborative arrangements with pharmaceutical companies. At March 1, 1994, Centocor had approximately 500 full-time employees. To complement its own expertise in various fields, Centocor utilizes scientific consultants and advisors, many of whom have formal consulting agreements with Centocor. Centocor was incorporated in Pennsylvania in 1979 and maintains its principal executive offices at 200 Great Valley Parkway, Malvern, Pennsylvania 19355. Its telephone number is (610) 651-6000. The Company also maintains facilities in Leiden, The Netherlands, and Surrey, the United Kingdom, and an office in Tokyo, Japan. 1 TECHNOLOGY AND KNOW-HOW Antibodies are proteins produced by cells from the immune system in response to the presence of specific antigens. An antigen is any substance which activates this immune response. Antibodies recognize the shape of particular compositions on the surface of antigens and bind specifically with only those antigens having such surface compositions. Prior to the development of monoclonal antibody technology in the 1970s, it was not practicable to separate and grow a single type of antibody. Monoclonal antibody technology involves the creation of a hybrid cell, or hybridoma, by combining a cell which produces a specific antibody with a cell which reproduces indefinitely. The resulting hybridoma produces a specific antibody continually. Antibodies produced by such hybridomas are chemically and structurally homogeneous and hence are monoclonal. Centocor believes that there is a significant potential for using monoclonal antibodies to develop human health care products. While the specificity of monoclonal antibodies makes them attractive candidates for pharmaceutical product development, antibody-based products generally must be administered by injection, usually in a hospital setting, and are therefore used principally to treat acute diseases. Centocor believes that small peptide molecule drugs may potentially be formulated for convenient administration, including oral delivery, thereby affording an opportunity to treat not only acute diseases, but the larger patient population with chronic disease indications as well. The Company is conducting research activities in the field of small peptide molecule-based pharmaceutical products. See "Business - Research and Development." PRODUCTS Pharmaceutical Products The Company is developing therapeutic products for use in the treatment of specific types of infectious, cardiovascular and autoimmune diseases and cancer. Cardiovascular Therapy. The Company's therapeutic products under ---------------------- development include CentoRx, a product intended to treat or prevent the formation of blood clots in the cardiovascular system. In the first quarter of 1993, the Company completed a randomized, double-blinded, placebo-controlled Phase III trial in high-risk coronary angioplasty patients that enrolled 2,099 patients at 56 medical centers. The Company filed product license applications for CentoRx in the United States and Canada in 1993 and has filed product license applications in several countries in Europe in 1994. There can be no assurance that CentoRx will be approved for commercial sale in the United States, Europe or elsewhere. See "Business -Research and Development." During the second quarter of 1993, Eli Lilly and Company ("Lilly") exercised its option to become the exclusive worldwide distributor of CentoRx and the Company and Lilly amended their Sales and Distribution Agreement to reflect such event. See "Business - Marketing and Sales." Pursuant to that amendment, Lilly has assisted the Company and will continue to assist the Company in the regulatory filings and continued development of CentoRx for various clinical indications. 2 Cancer Therapy. Panorex, a product intended to treat colorectal -------------- cancer, has been tested in a Phase III trial at six German medical centers which enrolled 189 colorectal cancer patients who were subsequently monitored for the accumulation of five-year survival data. The Company expects to complete the filing of an application in 1994 requesting marketing approval for Panorex in Germany. There can be no assurance that Panorex will be approved for commercial sale in Germany or elsewhere. During 1993, the Company and Wellcome plc ("Wellcome") entered into an alliance agreement for the development and marketing of certain of the Company's monoclonal antibody-based cancer therapeutic products, including Panorex. See "Business - Marketing and Sales." Autoimmune Disease Therapy. The Company is currently developing -------------------------- CenTNF, a product targeted for the treatment of rheumatoid arthritis and inflammatory bowel diseases such as Crohn's disease. The Company is conducting Phase II clinical trials of CenTNF in rheumatoid arthritis and Crohn's disease and expects to commence a Phase III study in Europe in 1994. The Company has entered into an agreement with Tanabe Seiyaku Co., Ltd. under which Tanabe will undertake the human clinical testing and distribution of CenTNF in Japan. Infectious Disease Therapy. HA-1A is a product intended for the -------------------------- treatment of patients with severe sepsis who are dying from endotoxemia. The Company has filed product license applications in the United States, Europe, and other countries seeking approval to market HA-1A. Regulatory approvals to market HA-1A were received in several European countries. In April 1992, the FDA advised the Company that there was insufficient evidence of efficacy for approval of HA-1A at that time. In June 1992, the Company initiated a second randomized, double-blinded, placebo-controlled, Phase III U.S. clinical trial of HA-1A in the treatment of patients with Gram-negative bacteremia and septic shock. The Company terminated this trial in 1993 after concluding that there was no reduction in the mortality rate among HA-1A-treated patients who did have Gram-negative bacteremia in comparison with placebo-treated patients in the same group. The Company and its principal distributor of HA-1A, Lilly, also voluntarily suspended sales and conducted a recall of the drug in Europe and elsewhere where the drug is authorized for sale. The regulatory approvals to market HA-1A currently remain in effect pending the results of further clinical trials. The Company is currently conducting a randomized, double-blinded, placebo-controlled Phase III European clinical trial of the efficacy of HA-1A in the treatment of patients with fulminant meningococcemia. There can be no assurance that any further trials of HA-1A will be initiated or will be successful. The Company is supplying HA-1A on a limited compassionate-use basis in certain countries in Europe. There can be no assurance that any commercial sales of HA-1A will resume in Europe. Diagnostic Imaging Products The Company has developed techniques for modifying monoclonal antibodies so that they may be coupled with radioactive isotopes and used as contrast agents in diagnostic imaging procedures. After injection, antibodies labelled with a radioactive isotope travel to the disease site, allowing the site to be visualized or "imaged" with nuclear medicine equipment in a procedure similar to an X-ray. The Company's focus in this area is primarily on developing imaging agents for cardiovascular disease. 3 The Company has received marketing approvals for Myoscint, a cardiac imaging agent, in several European countries and a United States product license application for Myoscint is expected to be resubmitted to the FDA in 1994. Revenues from the sale of Myoscint in Europe have not been significant. There can be no assurance that Myoscint will be approved by the FDA or that sales, if any, in the United States will be significant. In-Vitro Diagnostic Products In-vitro diagnostic products are used to test patient blood samples outside the body to detect or monitor disease. In this area, the Company has focused principally on developing cancer diagnostic assays, certain of which it now manufactures and sells, as follows: Ovarian Cancer Test, CA 125. CA 125, which aids in the detection of --------------------------- residual epithelial ovarian cancer following first-line therapy, is sold for clinical use in the United States, certain European countries and Japan. Pancreatic Cancer Test, CA 19-9. CA 19-9, which aids in the detection ------------------------------- of pancreatic cancer, is sold for clinical use in certain European countries and Japan. Breast Cancer Test, CA 15-3. CA 15-3, which aids in the monitoring of --------------------------- breast cancer, is sold for clinical use in certain European countries and Japan. Gastric Cancer Test, CA 72-4. CA 72-4, which aids in the monitoring ---------------------------- of gastrointestinal cancer, is sold for clinical use in certain European countries and Japan. Multidrug Resistance Test, P-glycoCHEK. P-glycoCHEK, which detects a -------------------------------------- cellular protein associated with resistance to chemotherapeutic drugs, is available for investigational use in certain European countries and Japan. Non-Small Cell Lung Cancer Test, CYFRA 21-1. CYFRA 21-1, which aids ------------------------------------------- in the monitoring of non-small cell lung cancer, is available for clinical use in certain European countries and investigational use in Japan. Additionally, the Company manufactures and sells various in-vitro diagnostic products for infectious disease primarily in Europe. The Company submitted an application to the FDA in 1994 seeking approval to market a blood test for the detection of syphilis. The following product names are trademarks of the Company: HA-1A, Centoxin, CentoRx, CenTNF, Panorex, Myoscint, Capiscint, P-glycoCHEK, CA 125, CA 19-9, CA 72-4, CA 15-3, and CYFRA 21-1. 4 MARKETING AND SALES In the in-vitro diagnostic and imaging areas, Centocor has distribution agreements with companies having established positions and distribution networks in applicable market segments. During 1992, the Company adopted a similar collaborative strategy in its pharmaceutical business. In conjunction with such marketing strategy, the Company eliminated its European sales force in 1992 and eliminated its United States sales force in 1993. In July 1992, the Company and Lilly entered into a Sales and Distribution Agreement. During the second quarter of 1993, Lilly exercised its option under the Agreement to become the exclusive worldwide distributor of CentoRx and the Company and Lilly amended their Sales and Distribution Agreement to reflect such event. Under that Agreement, the Company is principally responsible for developing and manufacturing HA-1A and CentoRx and for securing regulatory approvals. If sales of HA-1A are resumed or approvals for the sale of CentoRx are obtained, Lilly will be principally responsible for the marketing, selling and distribution of HA-1A and CentoRx. The Company will sell the product to Lilly for Lilly's further sale to the end market. See Part II Item 8 "Financial Statements and Supplementary Data." In November 1993, the Company and Wellcome entered into an alliance agreement for the development and marketing of certain of the Company's monoclonal antibody-based cancer therapeutic products, including Panorex. Wellcome will contribute to the continuing clinical development of Panorex and six other potential drugs and then market and sell any approved drugs in most parts of the world. See Part II Item 8 "Financial Statements and Supplementary Data." During 1993, approximately 42 percent of the Company's total product sales were to three distributors: Toray-Fuji Bionics, Inc. in Japan, Compagnie Oris Industrie in France and Boehringer Mannheim GmbH in Germany. Additionally, prior to June 30, 1991, sales of in-vitro diagnostic products included investigational-use-only sales in the United States of certain products which have not been approved by the FDA, including CA 19-9, CA 15-3, CA 72-4, P- glycoCHEK and Gamma Interferon. Effective June 30, 1991, the Company ceased sales in the United States of all diagnostic products which had not been approved by the FDA. Certain financial information by geographic area as well as major customer information is set forth in Part II Item 8 "Financial Statements and Supplementary Data." The Company has no significant product backlog. MANUFACTURING The Company currently maintains a biopharmaceutical manufacturing facility in Leiden, The Netherlands, for the production of monoclonal antibody- based products using a proprietary cell-culture system. See Item 2 "Properties." The Company manufactures in-vitro diagnostic products at facilities in Malvern, Pennsylvania, and Surrey, the United Kingdom. 5 PATENTS AND LICENSING ARRANGEMENTS The Company owns or has rights to certain proprietary information, patent applications and patents which it deems important to the future commercial success of its products. There can be no assurance that others will not independently develop substantially equivalent proprietary information or obtain access to the Company's expertise, or that any patents, or rights thereto, of the Company will provide it with sufficient protection of its technology or survive any challenge to the scope or validity thereof. In addition, there can be no assurance that any patents will issue from any patent applications. Other entities have filed applications for or have been issued patents and are expected to obtain additional patents to which the Company may need to acquire rights. There can be no assurance that the Company will not infringe upon the patent rights of others. The extent to which the Company may need to obtain rights to any such patents or to contest their scope or validity will depend on final product formulation and other factors. The ability to license any such patents and the likelihood of successfully contesting the scope or validity of such patents are uncertain and the costs associated therewith may be significant. If the Company is required to acquire rights to valid and enforceable patents but cannot do so at a reasonable cost, the Company's ability to manufacture or market its products in the country of issuance of any such patent may be materially adversely affected. Centocor presently licenses the majority of the cell lines used to produce its monoclonal antibodies from research institutions pursuant to long- term licenses, for which it is generally obligated to pay royalties based upon sales of products incorporating such antibodies. There can be no assurance that others will not acquire rights to such cell lines in the future. GOVERNMENT REGULATION Regulation by governmental authorities in the United States and other countries is a significant factor in the manufacture and marketing of the Company's products and in ongoing research and product development activities. All of the Company's products will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical and clinical testing and other premarket approval requirements by the FDA and regulatory authorities in other countries. Various statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, recordkeeping and marketing of such products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by the Company to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect the Company or its ability to market the Company's products. The activities required before a pharmaceutical product may be marketed in the United States begin with preclinical testing. Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the potential safety and efficacy of the product and its formulations. The results of these studies must be submitted to the FDA as part of an Investigational New Drug application, which must be reviewed by the FDA before proposed clinical testing can begin. Typically, clinical testing involves a three-phase process. In Phase 6 I, clinical trials are conducted with a small number of subjects to determine the early safety profile and the pattern of drug distribution and metabolism. In Phase II, clinical trials are conducted with groups of patients afflicted with a specified disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large scale, multicenter, comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data to statistically evaluate the efficacy and safety of the product, as required by the FDA. The results of the preclinical and clinical testing of a pharmaceutical product are then submitted to the FDA in the form of a New Drug Application ("NDA"), or for a biological product in the form of a Product License Application ("PLA"), for approval to commence commercial sales. In responding to an NDA or PLA, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not satisfy its regulatory approval criteria. There can be no assurance that any approval required by the FDA will be obtained on a timely basis, if at all. Among the conditions for NDA or PLA approval is the requirement that the prospective manufacturer's quality control and manufacturing procedures conform on an ongoing basis with Good Manufacturing Practices ("GMP"). An Establishment License Application ("ELA") must be submitted for approval by the FDA with information about manufacturing facilities. Before approval of the ELA, the FDA will perform a prelicensing inspection of the facility to determine its compliance with GMP and other rules and regulations. In complying with GMP, manufacturers must continue to expend time, money and effort in the area of production and quality control to ensure full technical compliance. After the establishment is licensed for the manufacture of any product, it is subject to periodic inspections by the FDA. The requirements such as those described above which the Company must satisfy to obtain regulatory approval by governmental agencies in other countries prior to commercialization of its products in such countries can be as rigorous, costly, and uncertain. The Company is also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with the Company's research. The extent of government regulation which might result from any legislative or administrative action cannot be accurately predicted. The levels of revenues and profitability of biopharmaceutical companies may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of health care through various means. For example, in certain foreign markets pricing or profitability of therapeutic and other pharmaceutical products is subject to government control. In the United States, there have been, and the Company expects that there will continue to be, a number of federal and state proposals to implement similar government control. While the Company cannot predict whether any such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on the Company's business, financial condition and profitability. In addition, in both the United States and elsewhere, sales of therapeutic and other pharmaceutical products are dependent in part on the availability of reimbursement to the consumer from third party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical 7 products and services. If the Company succeeds in bringing one or more therapeutic products to the market, there can be no assurance that these products will be considered cost effective and that reimbursement to the consumer will be available or will be sufficient to allow the Company to sell its products on a competitive basis. TECHNOLOGICAL CHANGES AND COMPETITION Monoclonal antibody and peptide technology and other innovations in biotechnology are being examined, evaluated and practiced in biology research laboratories throughout the United States and in many other countries, including laboratories of other biotechnology companies and major pharmaceutical firms, many of which have greater resources than Centocor. In addition, many companies have been formed to produce monoclonal antibody-based, peptide-based and other biological products. Several established pharmaceutical companies have internal research and development groups, and alliances with other biotechnology companies, and are seeking to develop monoclonal antibody-based, peptide-based, and other biological products. In addition, many companies have recently entered the biological products field, some through acquisition or merger, and more may be expected to do so in the future. As a result, Centocor anticipates that new monoclonal antibody-based, peptide-based and other biological products will be developed by others, and that competition for highly qualified scientific, technical, marketing and sales, and managerial personnel will be intense. Centocor's management believes that the Company's ability to compete in its targeted markets will depend upon, among other things, its ability to develop, produce and market innovative products. Centocor's management also believes that significant competition will come from established pharmaceutical companies that have greater capital resources, manufacturing and marketing experience, research and development staffs, sales forces and production facilities than Centocor. Such competition is expected to be in the form of a variety of pharmaceutical products which may include monoclonal antibody-based and peptide-based products. There can be no assurance that the activities of others will not render the Company's products or technologies obsolete or uncompetitive. RESEARCH AND DEVELOPMENT Centocor's research and development activities focus primarily on monoclonal antibody technology and proprietary techniques to screen and characterize large numbers of monoclonal antibodies in search of optimal pharmaceutical agents. The Company's ability to select effective hybridomas and to produce antibodies from them is central to its business. The Company has living hybridomas that it has produced or that it has received under license agreements. These hybridomas are the source of the antibodies used by the Company in its existing products and in the antibody-based products it is developing and, therefore, are of proprietary importance. An understanding of the structure and function of antibodies is necessary in order to modify them for incorporation into diagnostic or therapeutic products. The Company has developed techniques for characterizing an antibody with respect to its structure, specificity and binding ability which are used in an effort to select the best antibody for a particular application. 8 The Company carries out research efforts in the use of recombinant DNA techniques to manipulate the genetic structure of antibody-producing cells. These efforts are intended to create re-engineered antibodies which combine the desired properties of more than one antibody, or the desired properties of antibodies and other system-regulating biochemicals such as enzymes. During 1992, the Company expanded its research efforts to include the field of small peptide molecule-based pharmaceutical products. For the three years ended December 31, 1993, 1992 and 1991, the Company's research and development expenses were $66,113,000, $106,633,000 and $71,701,000, respectively. The Company organized Centocor Cardiovascular Imaging Partners, L.P. ("CCIP"), Centocor Partners II, L.P. ("CPII"), CPIII, Tocor, Inc. ("Tocor") and Tocor II, Inc. ("Tocor II") to finance the research and development of certain products and/or technology. Under agreements with each of these entities, Centocor licensed certain technology to the entity and performed or continues to perform research and development in such technology areas on behalf of the entity. The Company purchased the limited partnership interests in CCIP and the callable common stock of Tocor in 1991, and the limited partnership interests in CPII in 1992. The Company granted CPIII an exclusive license to use all patent rights, know-how, technical information and biological materials owned or controlled by the Company within CPIII's field of activity, which includes CentoRx. CPIII also retains the rights to the results of research and development efforts conducted on its behalf. The Company has the ability to acquire such rights through an option to purchase the partnership interests in CPIII. See Part II Item 8 "Financial Statements and Supplementary Data." In February 1994, the Company initiated an Exchange Offer (the "Exchange Offer"), pursuant to which the Company offered to exchange 3.2 shares of its Common Stock for each of the 2,250,000 outstanding Tocor II Units tendered. Each Unit consists of one share of callable common stock of Tocor II, one callable warrant to purchase one share of Centocor Common Stock and one Series T warrant to purchase one share of Centocor Common Stock (the "Warrants"). No fractional shares of Centocor Common Stock will be issued. The expiration date of the Exchange Offer was March 11, 1994. With respect to the Tocor II Units not tendered, the Company would issue 2.88 shares of its Common Stock in exchange for the remaining Tocor II callable common stock in a merger transaction which is expected to be completed by March 31, 1994 (the "Second- Step Transaction"). Non-tendering Tocor II Unitholders would retain their Warrants. On March 11, 1994, the Company accepted 94 percent of the Tocor II Units tendered pursuant to the Exchange Offer, and the Company exchanged 3.2 shares of its Common Stock for each Tocor II Unit tendered. As a result of the Exchange Offer and the Second-Step Transaction, the Company will issue approximately 7,159,000 shares of its Common Stock. See Part II Item 8 "Financial Statements and Supplementary Data." 9 ITEM 2. PROPERTIES - ------------------- The Company owns four buildings in Malvern, Pennsylvania, and leases space in other buildings at this location. These buildings contain Centocor's corporate offices, research and development laboratories, marketing offices, and certain manufacturing facilities. Space is available in these buildings for future expansion. The acquisition costs of certain of these buildings were financed in part by mortgage loans which are still outstanding. The Company owns a biopharmaceutical manufacturing facility in Leiden, The Netherlands, and also leases research and development laboratories and office space at such location. A portion of the construction cost of the Leiden facility was financed by a mortgage loan which is still outstanding. See Part II Item 8 "Financial Statements and Supplementary Data." The Company also leases an in-vitro diagnostic manufacturing facility in Surrey, the United Kingdom. As a result of the downsizing of the Company's staff and present level of operations, portions of the Company's facilities and equipment in Malvern and Leiden are idle. The Company continually evaluates the future needs for its facilities and equipment. ITEM 3. LEGAL PROCEEDINGS - -------------------------- SHAREHOLDER LITIGATION On December 23, 1993, a purported class action captioned Peter Cordaro v. Hubert J.P. Schoemaker, Stelios Papadopoulos, Marc Feldmann, David Golden, Centocor, Inc., and Tocor II, Inc. was filed in the Court of Common Pleas of the Commonwealth of Pennsylvania, in and for Chester County. The complaint alleges that the defendants breached their fiduciary duties to Tocor II Unitholders by, among other things, making the Exchange Offer, recommending acceptance of the Exchange Offer, and failing to maximize shareholder value. The complaint sought, among other relief, an injunction against consummation of the Exchange Offer, the establishment of a "truly independent" special committee and financial advisor to consider the Exchange Offer, and an award of damages (including rescissionary damages), costs and plaintiff's counsel fees. No injunction was, in fact, sought, and the Exchange Offer was made and consummated. The Company believes that the allegations set forth in the complaint are without merit and intends to vigorously defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. In January 1993, purported security holders of the Company and/or Tocor II filed complaints in the United States District Court for the Eastern District of Pennsylvania against the Company, Tocor II, and certain present and former directors and/or officers of the Company and/or Tocor II, and Lilly. The cases were consolidated pursuant to an order, and a Consolidated Class Action Complaint captioned In Re Centocor Securities Litigation II, No. 93-CV-0236 (the "Complaint") was filed in May 1993, based on alleged violations of securities laws and alleged breaches of the named individual defendants of fiduciary duties to Centocor. All claims against all defendants, except the Company and two of its officers/directors, were voluntarily dismissed when the Complaint was filed. The Complaint alleges that defendants 10 knowingly or recklessly omitted certain material facts and made false and misleading statements of material facts about the Company in violation of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and also alleges violations of the common law of negligent misrepresentation. The action has been conditionally certified as a class action on behalf of persons who purchased common stock of the Company from April 21, 1992 through January 15, 1993 and who were allegedly damaged thereby. The Complaint seeks compensatory damages in unspecified amounts, counsel fees, interest, costs of suit, and such other relief that the court deems appropriate. Defendants answered the Complaint and denied the allegations therein. The Company believes that the allegations set forth in the Complaint are without merit and intends to vigorously defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. On June 3, 1993, the United States District Court for the Eastern District of Pennsylvania entered an order approving as final a settlement of the class action securities litigation and derivative actions captioned In Re Centocor, Inc. Securities Litigation, No. 92-CV-1071, which had been preliminarily approved in December 1992. The court had previously entered an order certifying (i) the litigation to proceed as a class action and (ii) a class of plaintiffs consisting of all persons who purchased the Company's securities during the period February 19, 1991 through April 20, 1992, and who sustained damages as a result of such purchases. All claims against the Company and the other defendants were dismissed on June 3, 1993, except as to those who opted out of the class. In settlement of the securities claims, the Company made a cash payment of $18,000,000; in settlement of the derivative action brought on behalf of the Company, the Company received a cash payment of $8,000,000; and in settlement of the derivative action brought on behalf of Tocor II, the Company and Tocor II amended certain agreements between them to provide that the Company would, over time, forego $3,000,000 of contract payments. In connection with the settlement, the Company recorded a charge to earnings of $11,245,000 in the fourth quarter of 1992, representing the net cost of the proposed settlement to the Company, including legal fees. The Company does not expect the effect, if any, of the outcome of any litigation resulting from those who opted out of the class to be material to the Company's financial condition. OTHER LITIGATION In October 1992, the Company was served with a complaint filed by the Velos Group, a Maryland partnership ("Velos"), in the United States District Court for the District of Maryland. The complaint alleges, principally, that the Company breached certain provisions of a license agreement between Velos and the Company pursuant to which the Company has exclusive rights to U.S. Patent No. 5,057,598, which includes claims relating to monoclonal antibodies used in treating manifestations of Gram-negative bacterial infections. The complaint seeks declaratory relief, monetary relief in excess of $100,000,000, and requests that the Company place in escrow one-half of the amounts received by the Company pursuant to its agreements with Lilly. The complaint does not seek to terminate or rescind any of the Company's rights under the license agreement. The Company answered the complaint and asserted affirmative defenses and counterclaims on January 7, 1993, but the counterclaims and certain affirmative defenses were dismissed with leave to replead on June 22, 1993. On July 28, 1993, the Court permitted plaintiff to file an amended complaint that updated some of the claims in the original complaint but otherwise reasserted the basic factual allegations and, with 11 one minor exception, relied upon the same legal theories. On August 27, 1993, the Company filed its Answer, Affirmative Defenses and Counterclaim for Damages and Equitable Relief (the "Amended Answer"). In the Amended Answer, the Company again denied all of the allegations made by Velos and stated certain affirmative defenses and counterclaims against Velos with respect to the license agreement, based on theories of (i) failure of consideration, (ii) fraud in the inducement, and (iii) unilateral mistake as to facts, which mistake was induced by the fraudulent misrepresentation of Velos. On September 22, 1993, plaintiff moved to dismiss the Company's counterclaims and to strike certain of Centocor's affirmative defenses. The Company has responded to that motion. The Company believes that the allegations of Velos are without merit and intends to vigorously defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. In May 1993, the Company was served with a complaint filed earlier in the United States District Court for the Southern District of California at San Diego. The plaintiff, who allegedly had purchased shares of Corvas International Inc. ("Corvas"), a California corporation, in its initial public offering on January 30, 1992, brought suit against Corvas and certain of its directors, the Company, and one of the Company's directors and a former director (the "Centocor defendants"), on behalf of similarly situated investors. The complaint alleges the defendants violated the federal securities laws by disclosing to Corvas' investors that Centocor and Corvas had entered into a "strategic alliance" to develop one of Corvas' products, but failing to disclose that the Company allegedly would not be able to perform on that agreement because of events relating to Centoxin (HA-1A). The Complaint sought to proceed as a class action on behalf of all those who purchased Corvas common stock during the period from January 30, 1992 through January 15, 1993. A motion to dismiss the complaint in its entirety as to the Centocor defendants was filed in early June 1993. Corvas and its directors had filed a motion to dismiss earlier. In September the Court dismissed a number of plaintiff's claims including claims relating to the period after April 14, 1992 and, in effect, the claim brought against the Company under Section 10(b) of the Securities Exchange Act of 1934. The Company believes the allegations which remain are without merit and intends vigorously to defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ Not applicable. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED - --------------------------------------------------------- STOCKHOLDER MATTERS ------------------- Centocor's Common Stock is traded on the National Market System of NASDAQ under the symbol CNTO. Set forth below for the indicated periods are the high and low sale prices for Centocor's Common Stock:
High Low ------ ------ First Quarter 1992 60 1/4 28 1/2 Second Quarter 1992 35 9 3/4 Third Quarter 1992 17 10 3/4 Fourth Quarter 1992 19 3/4 9 1/2 First Quarter 1993 19 1/2 5 1/2 Second Quarter 1993 9 1/2 5 1/4 Third Quarter 1993 10 7/8 6 3/4 Fourth Quarter 1993 15 3/4 10
The number of shareholders of record on March 1, 1994 was 5,657. No dividends have been paid on the Common Stock to date, and the Company does not expect to pay cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA -------------------------------- (in thousands except per share data) CONSOLIDATED STATEMENTS OF OPERATIONS DATA
For the year ended December 31, 1993 1992 1991 1990 1989 -------- --------- --------- --------- ------- Revenues Sales $ 48,071 $ 58,394 $ 44,328 $ 32,863 $27,616 Contracts: Related parties 10,109 16,071 4,902 27,870 28,900 Other* 17,750 51,767 3,967 3,901 15,444 -------- --------- --------- --------- ------- 75,930 126,232 53,197 64,634 71,960 Costs and expenses** 130,683 295,978 247,151 217,966 74,341 Other income (expenses)*** (19,626) (24,400) (1,601) 18,952 2,637 (Benefit) provision for income taxes - - - (2,200) 141 (Loss) income (74,379) (194,146) (195,555) (132,180) 115 (Loss) income per share ($1.79) ($4.90) ($5.72) ($5.10) $.01 Weighted average number of shares outstanding 41,482 39,623 34,172 25,930 23,220 -------- --------- --------- --------- -------
13 CONSOLIDATED BALANCE SHEET DATA
December 31, 1993 1992 1991 1990 1989 --------- -------- -------- -------- -------- Cash and investments**** $140,028 $163,083 $233,598 $100,877 $ 86,201 Total Assets 281,039 349,268 472,929 273,080 179,601 Long-term debt 238,100 238,166 259,368 42,083 22,489 Shareholders' equity (19,194) 30,721 144,027 168,664 132,955
No dividends have been declared or paid during any of the periods presented. *Other contract revenues include $5,000 and $50,000 from Lilly in 1993 and 1992, respectively and $10,000 from Wellcome in 1993. **Costs and expenses include the following: (a) charges for acquired research and development of $70,147 and $115,475 in 1991 and 1990, respectively, (b) charges of $ 3,500, $ 64,877 and $3,518 in 1993, 1992 and 1990, respectively, related to HA-1A inventory and (c) restructuring charges of $9,387, $15,266 and $3,548 in 1993, 1992 and 1990, respectively. ***Other income (expenses) include a charge of $11,245 in 1992 related to the settlement of certain litigation and gains of $12,976 in 1990 from the sale of certain investments. ****Cash and investments at December 31, 1993 included equity investments of $11,230. Additionally, the Company maintained $26,375 of investments at certain banks as collateral for certain debt outstanding at December 31, 1993. The data above does not reflect the increase in cash and investments of $51,494, and an increase in shareholders' equity of $38,198, which would have resulted if the Tocor II Exchange Offer were consummated as of December 31, 1993. Further in connection with the consummation of the Tocor II Exchange Offer the Company will record a charge to earnings of $36,454 in the first quarter of 1994 representing principally the cost of acquired research and development. See Note 18 to the Company's Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The Company's future financial condition is highly dependent upon the reduction of the Company's rate of net cash outflows and, ultimately, upon the achievement of significant and sustained levels of pharmaceutical product sales. The Company will need to secure significant additional capital in the future from collaborative arrangements with pharmaceutical companies or from the capital markets until significant and sustained levels of pharmaceutical sales are achieved. There can be no assurance that significant additional capital will be available to the Company. There also can be no assurance that the Company will materially reduce its current rate of net cash outflows or generate significant and sustained levels of pharmaceutical product sales. The FDA has not approved any of the Company's pharmaceutical products for marketing. There can be no assurance that FDA or other regulatory approvals of any of the Company's products will be obtained. Failure to obtain timely FDA or other regulatory approvals of pharmaceutical products will have a material adverse effect on the Company. The status of the Company's major pharmaceutical products is discussed below. The Company has been implementing a business plan employing a collaborative strategy utilizing, among other things, alliances with established pharmaceutical companies. The 14 Company's ability to further reduce its current rate of net cash outflows is also dependent upon the extent to which it can expand collaborations with established pharmaceutical companies and achieve milestones under such collaborative agreements. No assurance can be given that such collaborations can be expanded or that such milestones can be achieved. At December 31, 1993, the Company had cash, cash equivalents and investments of $140,028,000, including equity investments of $11,230,000. During the year ended December 31, 1993, the Company had negative cash flows from operations of $42,297,000. The Company's total cash flows in 1993 included $30,000,000 received from Wellcome of which $20,000,000 was received for the purchase of 2,000,000 shares of the Company's Common Stock. Additionally, cash flows in 1993 included the proceeds of $11,900,000 from the sale of the Company's St. Louis facility and the repayment of $5,800,000 of mortgage debt related to that facility. If the exchange offer which is discussed in Note 18 to the Company's Consolidated Financial Statements had been consummated as of December 31, 1993, the Company's cash and investment balance at December 31, 1993 would have been $191,522,000. At December 31, 1992, the Company had cash, cash equivalents, and investments of $163,083,000, including equity investments of $12,924,000. During the year ended December 31, 1992, the Company had negative cash flows from operations of $109,818,000 and acquired $23,309,000 of fixed assets. Cash flows from operations for the year ended December 31, 1992 included $50,000,000 received from Lilly primarily for reimbursement of expenses associated with HA- 1A. Additionally, during 1992, the Company expended $12,375,000 to purchase the limited partnership interests in CPII, $8,700,000 to acquire all the outstanding shares of capital stock of Mercia Diagnostics Limited ("Mercia"), a European diagnostics manufacturing and sales company, and $10,000,000 in connection with the settlement of certain class action securities litigation. These cash outflows were partially offset by cash inflows which included the receipt of $50,000,000 from Lilly for the purchase of 2,000,000 shares of the Company's Common Stock and $15,931,000 from borrowings under loan agreements. During the year ended December 31, 1991, the Company had negative cash flows from operations of $137,039,000 and acquired $31,129,000 of fixed assets. Also during 1991, the Company received significant cash inflows from financing activities, principally the net proceeds of $224,537,000 from the issuance of the Company's 7-1/4 percent Notes and 6-3/4 percent Debentures. During the years ended December 31, 1992 and 1991, the Company received $17,726,000 and $80,272,000, respectively, from the exercise of warrants and options to purchase shares of the Company's Common Stock. The extent and timing of future warrant and option exercises, if any, are primarily dependent upon the market price of the Company's Common Stock and general financial market conditions, as well as the exercise prices and expiration dates of the warrants and options. Agreements covering $20,402,000 of the Company's outstanding debt balances contain certain financial and non-financial covenants, including the maintenance of minimum equity and cash balances and compliance with certain financial ratios. The Company has obtained waivers of certain of such covenants on the condition that it maintain certain investments at the lending bank, which at December 31, 1993 totalled $20,000,000. There can be no assurance that the Company will be able to continue to collateralize such loans and, accordingly, the Company has classified $20,402,000 of debt as short-term. Additionally, $6,186,000 of the Company's short- 15 term debt is secured by investments at the lending bank of $6,375,000. If cash flows continue to be negative, the Company's ability to service its debt may be impaired. See Note 2 to the Company's Consolidated Financial Statements for a discussion of litigation and other factors which may affect the Company's future liquidity and capital resources. STATUS OF CENTORX The Company's therapeutic products under development include CentoRx, a product intended to treat or prevent the formation of blood clots in the cardiovascular system. In the first quarter of 1993, the Company completed a randomized, double-blinded, placebo-controlled Phase III trial in high-risk coronary angioplasty patients that enrolled 2,099 patients at 56 medical centers. The Company filed product license applications for CentoRx in the United States and Canada in 1993 and has filed product license applications in several countries in Europe in 1994. There can be no assurance that CentoRx will be approved for commercial sale in the United States, Europe or elsewhere. See Part I Item 1 "Business - Research and Development." During the second quarter of 1993, Lilly exercised its option to become the exclusive worldwide distributor of CentoRx and the Company and Lilly amended their Sales and Distribution Agreement to reflect such event. See Part I Item 1 "Business - Marketing and Sales." Pursuant to that amendment, Lilly has assisted the Company and will continue to assist the Company in the regulatory filings and continued development of CentoRx for various clinical indications. STATUS OF PANOREX Panorex, a product intended to treat colorectal cancer, has been tested in a Phase III trial at six German medical centers which enrolled 189 colorectal cancer patients who were subsequently monitored for the accumulation of five- year survival data. The Company expects to complete the filing of an application in 1994 requesting marketing approval for Panorex in Germany. There can be no assurance that Panorex will be approved for commercial sale in Germany or elsewhere. During 1993, the Company and Wellcome entered into an alliance agreement for the development and marketing of certain of the Company's monoclonal antibody-based cancer therapeutic products, including Panorex. See Part I Item 1 "Business - Marketing and Sales." STATUS OF HA-1A HA-1A is a product intended for the treatment of patients with severe sepsis who are dying from endotoxemia. The Company has filed product license applications in the United States, Europe, and other countries seeking approval to market HA-1A. Regulatory approvals to market HA-1A were received in several European countries. In April 1992, the FDA advised the Company that there was insufficient evidence of efficacy for approval of HA-1A at that time. In June 1992, the Company initiated a second randomized, double-blinded, placebo- controlled, Phase III U.S. clinical trial of HA-1A in the treatment of patients with Gram-negative bacteremia and septic shock. The Company terminated this trial in 1993 after concluding that there was no reduction in the mortality rate among HA-1A-treated patients who did have Gram-negative 16 bacteremia in comparison with placebo-treated patients in the same group. The Company and its principal distributor of HA-1A, Lilly, also voluntarily suspended sales and conducted a recall of the drug in Europe and elsewhere where the drug is authorized for sale. The regulatory approvals to market HA-1A currently remain in effect pending the results of further clinical trials. The Company is currently conducting a randomized, double-blinded, placebo-controlled Phase III European clinical trial of the efficacy of HA-1A in the treatment of patients with fulminant meningococcemia. There can be no assurance that any further trials of HA-1A will be initiated or will be successful. The Company is supplying HA-1A on a limited compassionate-use basis in certain countries in Europe. There can be no assurance that any commercial sales of HA-1A will resume in Europe. ASSETS The decrease in the aggregate amount of cash and investments at December 31, 1993 as compared to December 31, 1992 is discussed under Liquidity and Capital Resources. The decrease in the Company's inventory balance at December 31, 1993 as compared to December 31, 1992 is primarily due to the recording of reserves for HA-1A inventories. Gross fixed assets at December 31, 1993 decreased as compared to December 31, 1992 principally due to the sale of the Company's St. Louis manufacturing facility in July 1993. The Company expects investments in fixed assets of approximately $6,000,000 in 1994. As a result of the downsizing of the Company's staff and present level of operations, the Company currently maintains idle facilities and equipment. The Company continually evaluates the future needs for its facilities and equipment. There can be no assurance that reserves to further reduce the carrying value of certain fixed assets will not be required in the future. LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity at December 31, 1993 decreased as compared to December 31, 1992 principally as a result of the Company's loss for the year ended December 31, 1993, partially offset by an increase in additional paid-in capital due to the issuance of Common Stock to Wellcome and the receipt of the proceeds from the exercise of options and warrants. The extent and timing of future warrant and option exercises, if any, are primarily dependent upon the market price of the Company's Common Stock and general financial market conditions, as well as the exercise prices and expiration dates of the warrants and options. At December 31, 1993, the Company's liabilities exceeded its assets, resulting in a negative shareholders' equity balance. Shareholders' equity will decrease further in future periods unless and until the Company is successful in securing additional capital from collaborative arrangements with pharmaceutical companies or the capital markets or significant and sustained levels of pharmaceutical product sales are achieved. There can be no assurance that significant and sustained levels of pharmaceutical products sales will be achieved or that any additional capital will be available to the Company. If the exchange offer, as described in Note 18 to the Company's Consolidated Financial Statements had been consummated as of December 17 31, 1993, the Company's shareholders' equity position at December 31, 1993 would have been approximately $19,004,000. RESULTS OF OPERATIONS SPECIAL CHARGES The results of operations for the year ended December 31, 1993 include restructuring charges of $4,273,000 related to reserves for certain fixed assets no longer used or subsequently disposed and $5,114,000 principally related to severance. A charge of $3,500,000 related to HA-1A inventory was recorded in the fourth quarter of 1993. The results of operations for the year ended December 31, 1992 included a charge of $64,877,000 representing reserves for HA- 1A inventories and a charge of $11,245,000 related to the settlement of certain class action securities litigation. Additionally, during the year ended December 31, 1992, the Company recorded a restructuring charge of $15,266,000 related to the downsizing of its operations. The results of operations for the year ended December 31, 1991 included a charge to earnings of $70,147,000 for acquired research and development as a result of the Company's purchase of all of the callable common stock of Tocor. Excluding the items described above, the Company incurred losses for each of the years in the three year period ended December 31, 1993. There can be no assurance that additional charges will not be required in the future. In the first quarter of 1994, the Company will record a charge to earnings of $36,454,000 for acquired research and development as a result of an exchange offer which is described in Note 18 to the Company's Consolidated Financial Statements. REVENUES Product sales have not produced sufficient revenues to cover the Company's operating expenses. The decrease in sales for 1993 as compared to 1992 is principally due to HA-1A sales recorded during 1992 which did not recur in 1993 (see Status of HA-1A). There were no HA-1A sales for 1993 whereas 1992 sales of HA-1A totalled $12,545,000. Contract revenues for the year ended December 31, 1993 include $10,109,000, net of warrant amortization costs, recognized pursuant to the Company's agreements with Tocor II as compared to $16,071,000 for the year ended December 31, 1992. Revenues from Tocor II for the year ended December 31, 1992 included a $2,500,000 non-refundable fee from Tocor II in connection with the license of certain technology by the Company to Tocor II. The decrease in such revenues for the year ended December 31, 1993 is principally due to a reduction in the Company's antibody research program costs allocated to the Tocor II research program. Contract revenues for the years ended 1993 and 1992 also included $5,000,000 and $50,000,000, respectively, of revenues recognized pursuant to the Company's agreements with Lilly and $10,000,000 of revenues recognized in 1993 pursuant to the Company's agreements with Wellcome. For the year ended December 31, 1991, contract revenues consisted principally of revenues from research and development agreements with CPII, CPIII, and Tocor. The Company acquired all of the callable common stock of Tocor in 1991 and the limited partnership interests in CPII in 1992. Funding for the CPIII research and development agreement was 18 exhausted in 1991. As a result of an exchange offer which is more fully described in Note 18 to the Company's Consolidated Financial Statements, the revenues under the Tocor II research programs will terminate in 1994. The level of contract revenues in future periods will primarily depend upon the extent to which the Company enters into other collaborative contractual arrangements, if any, and the achievement of milestones under current arrangements. COSTS AND EXPENSES Cost of sales decreased in 1993 as compared to 1992 due to decreased sales, principally sales of HA-1A as discussed above. Cost of sales increased in 1992 as compared to 1991 due to increased sales, principally sales of HA-1A. The Company manufactures its pharmaceutical products at its manufacturing facility in Leiden, The Netherlands. Consequently, the strength of the Dutch Guilder in relation to the U.S. dollar may have an impact on the costs of production and, therefore, the profit margin from sales. Additionally, the Company's antibody- based products are produced through the growth of living cells in culture, which cells secrete the desired antibody. The production cost per unit and, consequently, the profit margin from sales, are highly dependent upon the antibody yields. As further described in Note 2 to the Company's Consolidated Financial Statements, the Company is required to make certain royalty payments based on sales of products, which payments are reflected in cost of sales. Royalty costs represent a significant percentage of sales. Research and development expenses decreased in 1993 as compared to 1992 due principally to a decrease in costs associated with clinical trials of products under development. Research and development expenses increased in 1992 as compared to 1991 principally due to an increase in the allocation of certain resources to research and development efforts due to a decrease in the level of inventory production, and increased costs associated with clinical trials of products under development. The Company expects an increased level of clinical trial expenses in 1994 as compared to 1993. Marketing, general and administrative expenses for the year ended December 31, 1993 decreased as compared to the year ended December 31, 1992, due principally to reductions in sales and administrative staffs, marketing costs and legal costs. Marketing, general and administrative expense for the year ended December 31, 1992 decreased as compared to 1991 due principally to reduced legal costs combined with decreased costs from selective reductions in staff and other cost reduction efforts. The Company expects to maintain current levels of marketing, general and administrative expenses in 1994. OTHER INCOME AND EXPENSES Interest income decreased in 1993 as compared to 1992 due principally to a reduction in the Company's cash and investment balances and reduced interest rates on investment. Interest income in future periods will depend primarily on the level of the Company's investments and the interest rates obtained on such investments. During 1993 and 1992, the Company recorded unrealized losses of $2,477,000 and $2,296,000, respectively, due to the other than temporary reduction in the market value of marketable equity investments below the Company's cost for 19 such investments. During the year ended December 31, 1992, the Company recorded a gain of $1,170,000 from the sale of certain securities. PER SHARE CALCULATIONS At December 31, 1993, approximately 18,962,000 shares of the Company's Common Stock were issuable upon exercise of outstanding options and warrants and upon vesting of restricted stock awards. Options, warrants, and stock awards are considered Common Stock equivalents for purposes of per share data. The Company uses the modified treasury stock method of calculating per share data since the number of shares of the Company's Common Stock issuable upon the exercise of Common Stock equivalents is in excess of 20 percent of the Company's outstanding Common Stock. Under the modified treasury stock method, the effect of Common Stock issuable upon the exercise of Common Stock equivalents is reflected in the per share data calculation only if the aggregate effect would be dilutive. The 3,843,000 shares issuable upon conversion of the 7-1/4 percent Notes and the 2,049,000 shares issuable upon conversion of the 6-3/4 percent Debentures are not considered Common Stock equivalents and are not included in the calculation of primary per share data but are included in the calculation of fully diluted per share data if their effect is dilutive. No Common Stock equivalents or shares issuable upon conversion of the 7-1/4 percent Notes and 6-3/4 percent Debentures were included in the per share calculations for any periods presented since to do so would have been antidilutive as the Company has recorded net losses in all periods presented. In future periods, depending upon the market value of the Company's Common Stock and its results of operations for such periods, the Company may be required to include its then outstanding Common Stock equivalents as well as shares issuable upon the conversion of the 7-1/4 percent Notes and the 6-3/4 percent Debentures in its calculations of per share data for such periods if the effect would be dilutive. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------- CONSOLIDATED BALANCE SHEETS (In thousands)
December 31, 1993 1992 --------- --------- ASSETS Current assets: Cash and cash equivalents (Notes 4, 7 and 18) $ 46,210 $ 28,496 Short-term investments (Notes 4, 7 and 18) 76,662 121,663 Accounts and contracts receivable 12,078 12,668 Interest receivable 471 1,777 Inventory (Note 5) 13,874 16,858 Prepaid expenses 2,392 3,642 Other current assets 1,024 2,060 -------- -------- 152,711 187,164 Fixed assets (Note 7): Land and buildings 64,284 77,426 Equipment, furniture, fixtures and improvements 78,932 92,604 -------- -------- 143,216 170,030 Less accumulated depreciation (58,533) (51,840) -------- -------- 84,683 118,190 Long-term investments (Note 4) 17,156 12,924 Intangible and other assets 26,489 30,990 -------- -------- Total assets $281,039 $349,268 ======== ========
See accompanying Notes to Consolidated Financial Statements. 21 CONSOLIDATED BALANCE SHEETS (CONT'D.) (In thousands)
December 31, 1993 1992 --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,133 $ 4,479 Accrued expenses (Note 6) 23,127 34,557 Unearned revenues 2,690 2,837 Note payable (Note 7) 6,186 6,593 Current portion of long-term debt (Note 7) 20,468 28,640 --------- --------- 59,604 77,106 Long-term debt (Note 7) 238,100 238,166 Other liabilities 2,023 2,772 Minority interest 506 503 Shareholders' equity (Notes 2, 8 and 18): Preferred Stock, $.01 par value, 10,000 shares authorized, none issued - - Common Stock, $.01 par value, 100,000 shares authorized and 43,672 and 41,192 issued and outstanding at December 31, 1993 and 1992, respectively 437 412 Additional paid-in capital 601,138 575,072 Deficit (625,049) (550,670) Unrealized loss on marketable securities (635) - Cumulative foreign currency translation adjustments 4,915 5,907 --------- --------- (19,194) 30,721 --------- --------- Total liabilities and shareholders' equity $ 281,039 $ 349,268 ========= =========
See accompanying Notes to Consolidated Financial Statements. 22 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data)
For the years ended December 31, 1993 1992 1991 --------- ---------- ---------- Revenues: Sales $ 48,071 $ 58,394 $ 44,328 Contracts (including related party revenues of: $10,109 in 1993, $16,071 in 1992 and $4,902 in 1991) (Note 10) 27,859 67,838 8,869 --------- ---------- ---------- 75,930 126,232 53,197 Costs and expenses: Cost of sales 15,819 21,764 16,521 Research and development (including contract revenue-related expenses of $9,414 in 1993, $11,871 in 1992 and $4,275 in 1991) 66,113 106,633 71,701 Marketing, general and administrative (including contract revenue-related expenses of $2,327 in 1993, $3,176 in 1992, and $1,608 in 1991) 35,864 87,438 88,782 Charge for acquired research and development (Note 11) - - 70,147 Charges related to HA-1A inventory 3,500 64,877 - Restructuring charges (Note 17) 9,387 15,266 - --------- ---------- ---------- 130,683 295,978 247,151 Other Income (expenses): Litigation settlement (Note 2) - (11,245) - Interest income 4,192 8,446 11,776 Interest expense (20,087) (19,798) (11,354) Net loss on long-term investments (Note 12) (2,477) (1,126) - Minority interest and other (1,254) (677) (2,023) --------- ---------- ---------- (19,626) (24,400) (1,601) Net loss ($74,379) ($194,146) ($195,555) ========= ========== ========== Net loss per share ($1.79) ($4.90) ($5.72) ========= ========== ========== Weighted average number of shares outstanding 41,482 39,623 34,172 ========= ========== ==========
See accompanying Notes to Consolidated Financial Statements 23 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the years ended December 31, 1993 1992 1991 --------- ---------- ---------- Cash flows used for operating activities: Net loss ($74,379) ($194,146) ($195,555) Adjustments to reconcile net loss to net cash used for operating activities: Charge for acquired research and development - - 70,147 Inventory and restructuring charges 7,773 80,143 - Litigation charges (1,245) 1,245 - Net loss on long-term investments 2,477 1,126 - Depreciation and amortization 25,804 24,217 18,176 Amortization of deferred income (268) (39) (71) Minority interest and other 1,157 189 1,115 Changes in assets and liabilities: Related party receivables - - 8,015 Accounts and contracts receivables 490 1,385 (6,778) Interest receivable 1,296 2,714 (2,349) Inventory (591) (9,197) (41,476) Prepaid expenses (1,606) (4,438) (3,943) Other current assets 529 2,388 502 Intangible and other assets (1,759) 2,741 (4,438) Accounts payable 2,753 (12,650) 5,821 Unearned revenue 152 2,837 - Accrued expenses and other liabilities (5,157) (7,802) 13,494 Other long-term liabilities 277 (531) 301 --------- ---------- ---------- Net cash used for operating activities (42,297) (109,818) (137,039) Cash flows from (used for) investing activities: Net sales (purchases) of investments 35,197 87,293 (131,277) Net purchases of fixed assets (2,008) (18,168) (31,129) Proceeds from sale of St. Louis facility 11,913 - - Acquisition of interests in limited partnerships - (12,375) (3,465) Acquisition of stock of Mercia Diagnostics Limited - (8,700) - Other - - 1,544 --------- ---------- ---------- Net cash from (used for) investing activities 45,102 48,050 (164,327) Cash flows from financing activities: Net proceeds from issuance of Common Stock 23,123 67,726 80,272 Proceeds from issuance of long-term debt and notes payable 2,500 15,931 251,534 Reduction of long-term debt and notes payable (9,453) (2,015) (35,745) Distribution to minority interest - (756) (183) --------- ---------- ---------- Net cash from financing activities 16,170 80,886 295,878 Effect of foreign currency translation (1,261) (1,508) 1,248 --------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 17,714 17,610 (4,240) Beginning cash and cash equivalents 28,496 10,886 15,126 --------- ---------- ---------- Ending cash and cash equivalents $ 46,210 $ 28,496 $ 10,886 ========= ========== ==========
See accompanying Notes to Consolidated Financial Statements. 24 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
Common Stock Net unrealized Cumulative --------------- Additional loss on foreign currency Number Par Paid in marketable translation of Shares Value Capital Deficit securities adjustments --------- ----- -------- ----------- --------------- ----------------- Balance at December 31, 1990 27,998 $280 $319,968 ($160,969) $ - $ 9,385 Issued upon exercise of options and warrants or as stock grants 4,349 44 75,438 - - - Issued to employee benefit plan 11 - 257 - - - Vested pursuant to restricted stock award plan 134 1 1,638 - - - Issued upon conversion of convertible debentures 3,132 31 23,188 - - - Issued upon acquisition of Tocor (Note 11) 2,057 21 68,979 - - - Translation adjustments for the period - - - - - 1,321 Net loss - - - (195,555) - - ------ ---- -------- ---------- -------------- ---------------- Balance at December 31, 1991 37,681 377 489,468 (356,524) - 10,706 Issued to Eli Lilly and Company (Note 3) 2,000 20 49,980 - - - Issued upon exercise of options and warrants or as stock grants 1,334 13 17,474 - - - Issued to employee benefit plan 9 - 479 - - - Warrants issued in Tocor II transaction (Note 8) - - 14,625 - - - Vested pursuant to restricted stock award plan 168 2 3,046 - - - Translation adjustments for the period - - - - - (4,799) Net loss - - - (194,146) - - ------ ---- -------- ---------- -------------- ---------------- Balance at December 31, 1992 41,192 412 575,072 (550,670) - 5,907 Issued to Wellcome, plc (Note 3) 2,000 20 19,980 - - - Issued upon exercise of options and warrants or as stock grants 329 3 2,908 - - - Issued to employee benefit plan 57 1 970 - - - Vested pursuant to restricted stock award plan 94 1 2,208 - - - Translation adjustments for the period - - - - - (992) Unrealized loss on marketable securities - - - - (635) - Net loss - - - (74,379) - - ------ ---- -------- ---------- -------------- ---------------- Balance at December 31, 1993 43,672 $437 $601,138 ($625,049) ($635) $ 4,915 ====== ==== ======== ========== ============== ================
25 Notes to Consolidated Financial Statements Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and joint ventures. Investments ----------- The Company classifies investments with original maturities of three months or less as cash equivalents. Investments with maturities of one year or less are classified as short-term. Short-term marketable securities are carried at cost, which approximates market value. Long-term debt securities which the Company has the ability and intent to hold until maturity are carried at cost. Long-term marketable equity securities are carried at the lower of cost or market value. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which must be adopted by the Company beginning January 1, 1994. The Company does not expect the effect of adoption of this statement to be material to its financial statements. Inventory --------- Inventory is stated at the lower of cost or market using the first-in, first-out method for diagnostic product inventories and the average cost method for pharmaceutical product inventories. Inventories have various expiration dates. Reserves are provided for inventories which are likely to expire prior to sale or are likely to be otherwise not available for sale. Fixed Assets and Depreciation ----------------------------- Fixed assets are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which range from 3 to 31 years. Leasehold improvements are amortized over the applicable lease period or their estimated useful lives, whichever is shorter. Maintenance and repairs are charged to expense, and major renewals and improvements are capitalized. Intangible Assets ----------------- Intangible assets are stated at cost, net of accumulated amortization. Amortization is provided using the straight-line method over the estimated useful lives of the assets, generally 10 to 20 years. Intangible assets at December 31, 1993 and 1992 were $9,364,000 and 26 Notes to Consolidated Financial Statements $11,560,000, respectively, net of accumulated amortization of $3,666,000 and $5,583,000 at December 31, 1993 and 1992, respectively. Revenue Recognition ------------------- For contracts under which the Company is reimbursed for expenses, revenue is recognized as the related expenses are incurred. Non-refundable fees or milestone payments in connection with research and development or commercialization agreements are recognized when they are earned in accordance with the applicable performance requirements and contractual terms. Payments received which are related to future performance are deferred and recognized as revenue over the specified future performance periods. Sales revenues are recognized at the time the goods are shipped or when title to the goods passes to the buyer. Income Taxes ------------ Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The adoption of SFAS 109 had no impact on the Company's financial statements. See Note 13. Per Share Data -------------- Per share data are based upon the modified treasury stock method and are calculated using the weighted average number of outstanding shares of Common Stock. Common Stock issuable upon the exercise of stock options or warrants and upon the vesting of restricted stock awards are included in the per share calculations only to the extent their inclusion would have an aggregate dilutive effect. Common Stock issuable upon conversion of convertible debt securities are included only in the fully diluted per share calculations to the extent their inclusion would have a dilutive effect. Foreign Currency Translation ---------------------------- Assets and liabilities of subsidiaries denominated in foreign currencies are translated at rates in effect at the appropriate year-end. The revenues and expenses of such subsidiaries are translated at average rates for the period of operation. The differences resulting from such translation as compared to the equity of such subsidiaries translated at historical rates are included in cumulative foreign currency translation adjustments, a separate component of shareholders' equity. 27 Notes to Consolidated Financial Statements Note 2 COMMITMENTS AND CONTINGENCIES Liquidity and Capital Resources The Company's future financial condition is highly dependent upon the reduction of the Company's rate of net cash outflows and, ultimately, upon the achievement of significant and sustained levels of pharmaceutical product sales. The Company will need to secure significant additional capital in the future from collaborative arrangements with pharmaceutical companies or from the capital markets until significant and sustained levels of pharmaceutical sales are achieved. There can be no assurance that significant additional capital will be available to the Company. There also can be no assurance that the Company will materially reduce its current rate of net cash outflows or generate significant and sustained levels of pharmaceutical product sales. The FDA has not approved any of the Company's pharmaceutical products for marketing. There can be no assurance that FDA or other regulatory approvals of any of the Company's products will be obtained. Failure to obtain timely FDA or other regulatory approvals of pharmaceutical products will have a material adverse effect on the Company. The status of the Company's major pharmaceutical products is discussed below. The Company has been implementing a business plan employing a collaborative strategy utilizing, among other things, alliances with established pharmaceutical companies. The Company's ability to further reduce its current rate of net cash outflows is also dependent upon the extent to which it can expand collaborations with established pharmaceutical companies and achieve milestones under such collaborative agreements. No assurance can be given that such collaborations can be expanded or that such milestones can be achieved. At December 31, 1993, the Company had cash, cash equivalents and investments of $140,028,000, including equity investments of $11,230,000. During the year ended December 31, 1993, the Company had negative cash flows from operations of $42,297,000. The Company's total cash flows in 1993 included $30,000,000 received from Wellcome of which $20,000,000 was received for the purchase of 2,000,000 shares of the Company's Common Stock. Additionally, cash flows in 1993 included the proceeds of $11,900,000 from the sale of the Company's St. Louis facility and the repayment of $5,800,000 of mortgage debt related to that facility. If the Exchange Offer which is discussed in Note 18 had been consummated as of December 31, 1993, the Company's cash and investment balance at December 31, 1993 would have been $191,522,000. At December 31, 1992, the Company had cash, cash equivalents, and investments of $163,083,000, including equity investments of $12,924,000. During the year ended December 31, 1992, the Company had negative cash flows from operations of $109,818,000 and acquired $23,309,000 of fixed assets. Cash flows from operations for the year ended December 31, 1992 included $50,000,000 received from Lilly primarily for reimbursement of expenses associated with HA-1A. Additionally, during 1992, the Company expended $12,375,000 to purchase the limited partnership interests in 28 Notes to Consolidated Financial Statements CPII, $8,700,000 to acquire all the outstanding shares of capital stock of Mercia, a European diagnostics manufacturing and sales company, and $10,000,000 in connection with the settlement of certain class action securities litigation. These cash outflows were partially offset by cash inflows which included the receipt of $50,000,000 from Lilly for the purchase of 2,000,000 shares of the Company's Common Stock and $15,931,000 from borrowings under loan agreements. During the year ended December 31, 1991, the Company had negative cash flows from operations of $137,039,000 and acquired $31,129,000 of fixed assets. Also during 1991, the Company received significant cash inflows from financing activities, principally the net proceeds of $224,537,000 from the issuance of the Company's 7-1/4 percent Notes and 6-3/4 percent Debentures. During the years ended December 31, 1992 and 1991, the Company received $17,726,000 and $80,272,000, respectively, from the exercise of warrants and options to purchase shares of the Company's Common Stock. The extent and timing of future warrant and option exercises, if any, are primarily dependent upon the market price of the Company's Common Stock and general financial market conditions, as well as the exercise prices and expiration dates of the warrants and options. Agreements covering $20,402,000 of the Company's outstanding debt balances contain certain financial and non-financial covenants, including the maintenance of minimum equity and cash balances and compliance with certain financial ratios. The Company has obtained waivers of certain of such covenants on the condition that it maintain certain investments at the lending bank, which at December 31, 1993 totalled $20,000,000. There can be no assurance that the Company will be able to continue to collateralize such loans and, accordingly, the Company has classified $20,402,000 of debt as short-term. Additionally, $6,186,000 of the Company's short-term debt is secured by investments at the lending bank of $6,375,000. If cash flows continue to be negative, the Company's ability to service its debt may be impaired. Status of CentoRx The Company's therapeutic products under development include CentoRx, a product intended to treat or prevent the formation of blood clots in the cardiovascular system. In the first quarter of 1993, the Company completed a randomized, double-blinded, placebo-controlled Phase III trial in high-risk coronary angioplasty patients that enrolled 2,099 patients at 56 medical centers. The Company filed product license applications for CentoRx in the United States and Canada in 1993 and has filed product license applications in several countries in Europe in 1994. There can be no assurance that CentoRx will be approved for commercial sale in the United States, Europe or elsewhere. See Part I Item 1 "Business - Research and Development." During the second quarter of 1993, Lilly exercised its option to become the exclusive worldwide distributor of CentoRx and the Company and Lilly amended their Sales and Distribution Agreement to reflect such event. See Part I Item 1 "Business - Marketing and Sales." Pursuant to that amendment, Lilly has assisted the Company and will continue to assist the Company in the regulatory filings and continued development of CentoRx for various clinical indications. 29 Notes to Consolidated Financial Statements Status of Panorex - ----------------- Panorex, a product intended to treat colorectal cancer, has been tested in a Phase III trial at six German medical centers which enrolled 189 colorectal cancer patients who were subsequently monitored for the accumulation of five- year survival data. The Company expects to complete the filing of an application in 1994 requesting marketing approval for Panorex in Germany. There can be no assurance that Panorex will be approved for commercial sale in Germany or elsewhere. During 1993, the Company and Wellcome entered into an alliance agreement for the development and marketing of certain of the Company's monoclonal antibody-based cancer therapeutic products, including Panorex. See Part I Item 1 "Business - Marketing and Sales." Status of HA-1A HA-1A is a product intended for the treatment of patients with severe sepsis who are dying from endotoxemia. The Company has filed product license applications in the United States, Europe, and other countries seeking approval to market HA-1A. Regulatory approvals to market HA-1A were received in several European countries. In April 1992, the FDA advised the Company that there was insufficient evidence of efficacy for approval of HA-1A at that time. In June 1992, the Company initiated a second randomized, double-blinded, placebo- controlled, Phase III U.S. clinical trial of HA-1A in the treatment of patients with Gram-negative bacteremia and septic shock. The Company terminated this trial in 1993 after concluding that there was no reduction in the mortality rate among HA-1A-treated patients who did have Gram-negative bacteremia in comparison with placebo-treated patients in the same group. The Company and its principal distributor of HA-1A, Lilly, also voluntarily suspended sales and conducted a recall of the drug in Europe and elsewhere where the drug is authorized for sale. The regulatory approvals to market HA-1A currently remain in effect pending the results of further clinical trials. The Company is currently conducting a randomized, double-blinded, placebo-controlled Phase III European clinical trial of the efficacy of HA-1A in the treatment of patients with fulminant meningococcemia. There can be no assurance that any further trials of HA-1A will be initiated or will be successful. The Company is supplying HA-1A on a limited compassionate-use basis in certain countries in Europe. There can be no assurance that any commercial sales of HA- 1A will resume in Europe. Shareholder Litigation On December 23, 1993, a purported class action captioned Peter Cordaro v. Hubert J.P. Schoemaker, Stelios Papadopoulos, Marc Feldmann, David Golden, Centocor, Inc., and Tocor II, Inc. was filed in the Court of Common Pleas of the Commonwealth of Pennsylvania, in and for Chester County. The complaint alleges that the defendants breached their fiduciary duties to Tocor II Unitholders by, among other things, making the Exchange Offer, recommending acceptance of the Exchange Offer, and failing to maximize shareholder value. The complaint sought, among other relief, an injunction against consummation of the Exchange Offer, the 30 Notes to Consolidated Financial Statements establishment of a "truly independent" special committee and financial advisor to consider the Exchange Offer, and an award of damages (including rescissionary damages), costs and plaintiff's counsel fees. No injunction was, in fact, sought, and the Exchange Offer was made and consummated. The Company believes that the allegations set forth in the complaint are without merit and intends to vigorously defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. In January 1993, purported security holders of the Company and/or Tocor II filed complaints in the United States District Court for the Eastern District of Pennsylvania against the Company, Tocor II, and certain present and former directors and/or officers of the Company and/or Tocor II, and Lilly. The cases were consolidated pursuant to an order, and a Consolidated Class Action Complaint captioned In Re Centocor Securities Litigation II, No. 93-CV-0236 (the "Complaint") was filed in May 1993, based on alleged violations of securities laws and alleged breaches of the named individual defendants of fiduciary duties to Centocor. All claims against all defendants, except the Company and two of its officers/directors, were voluntarily dismissed when the Complaint was filed. The Complaint alleges that defendants knowingly or recklessly omitted certain material facts and made false and misleading statements of material facts about the Company in violation of Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and also alleges violations of the common law of negligent misrepresentation. The action has been conditionally certified as a class action on behalf of persons who purchased common stock of the Company from April 21, 1992 through January 15, 1993 and who were allegedly damaged thereby. The Complaint seeks compensatory damages in unspecified amounts, counsel fees, interest, costs of suit, and such other relief that the court deems appropriate. Defendants answered the Complaint and denied the allegations therein. The Company believes that the allegations set forth in the Complaint are without merit and intends to vigorously defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. On June 3, 1993, the United States District Court for the Eastern District of Pennsylvania entered an order approving as final a settlement of the class action securities litigation and derivative actions captioned In Re Centocor, Inc. Securities Litigation, No. 92-CV-1071, which had been preliminarily approved in December 1992. The court had previously entered an order certifying (i) the litigation to proceed as a class action and (ii) a class of plaintiffs consisting of all persons who purchased the Company's securities during the period February 19, 1991 through April 20, 1992, and who sustained damages as a result of such purchases. All claims against the Company and the other defendants were dismissed on June 3, 1993, except as to those who opted out of the class. In settlement of the securities claims, the Company made a cash payment of $18,000,000; in settlement of the derivative action brought on behalf of the Company, the Company received a cash payment of $8,000,000; and in settlement of the derivative action brought on behalf of Tocor II, the Company and Tocor II amended certain agreements between them to provide that the Company would, over time, forego $3,000,000 of contract payments. In connection with the settlement, the Company recorded a charge to earnings of $11,245,000 in the fourth quarter of 1992, representing the net cost of the proposed settlement to the Company, including legal fees. The Company does not expect the effect, if 31 Notes to Consolidated Financial Statements any, of the outcome of any litigation resulting from those who opted out of the class to be material to the Company's financial condition. Other Litigation In October 1992, the Company was served with a complaint filed by Velos in the United States District Court for the District of Maryland. The complaint alleges, principally, that the Company breached certain provisions of a license agreement between Velos and the Company pursuant to which the Company has exclusive rights to U.S. Patent No. 5,057,598, which includes claims relating to monoclonal antibodies used in treating manifestations of Gram-negative bacterial infections. The complaint seeks declaratory relief, monetary relief in excess of $100,000,000, and requests that the Company place in escrow one-half of the amounts received by the Company pursuant to its agreements with Lilly. The complaint does not seek to terminate or rescind any of the Company's rights under the license agreement. The Company answered the complaint and asserted affirmative defenses and counterclaims on January 7, 1993, but the counterclaims and certain affirmative defenses were dismissed with leave to replead on June 22, 1993. On July 28, 1993, the Court permitted plaintiff to file an amended complaint that updated some of the claims in the original complaint but otherwise reasserted the basic factual allegations and, with one minor exception, relied upon the same legal theories. On August 27, 1993, the Company filed its Answer, Affirmative Defenses and Counterclaim for Damages and Equitable Relief (the "Amended Answer"). In the Amended Answer, the Company again denied all of the allegations made by Velos and stated certain affirmative defenses and counterclaims against Velos with respect to the license agreement, based on theories of (i) failure of consideration, (ii) fraud in the inducement, and (iii) unilateral mistake as to facts, which mistake was induced by the fraudulent misrepresentation of Velos. On September 22, 1993, plaintiff moved to dismiss the Company's counterclaims and to strike certain of Centocor's affirmative defenses. The Company has responded to that motion. The Company believes that the allegations of Velos are without merit and intends to vigorously defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. In May 1993, the Company was served with a complaint filed earlier in the United States District Court for the Southern District of California at San Diego. The plaintiff, who allegedly had purchased shares of Corvas in its initial public offering on January 30, 1992, brought suit against Corvas and certain of its directors, the Company, and one of the Company's directors and a former director (the "Centocor defendants"), on behalf of similarly situated investors. The complaint alleges the defendants violated the federal securities laws by disclosing to Corvas' investors that Centocor and Corvas had entered into a "strategic alliance" to develop one of Corvas' products, but failing to disclose that the Company allegedly would not be able to perform on that agreement because of events relating to Centoxin (HA-1A). The Complaint sought to proceed as a class action on behalf of all those who purchased Corvas common stock during the period from January 30, 1992 through January 15, 1993. A motion to dismiss the complaint in its entirety as to the Centocor defendants was filed in early June 1993. Corvas and its directors had filed a motion 32 Notes to Consolidated Financial Statements to dismiss earlier. In September the Court dismissed a number of plaintiff's claims including claims relating to the period after April 14, 1992 and, in effect, the claim brought against the Company under Section 10(b) of the Securities Exchange Act of 1934. The Company believes the allegations which remain are without merit and intends vigorously to defend the suit. The Company does not expect the effect, if any, of the outcome of this litigation to be material to the Company's financial condition. Partnerships - ------------ The Company has licensed certain technology related to CentoRx and Capiscint to CPIII and performs research and development with respect to such technology on CPIII's behalf. CPIII holds the rights to the licensed technology and results of the research and development efforts related thereto. The Company has the option to acquire such rights through its option to purchase the limited partnership interests in CPIII. The Company's option to purchase the limited partnership interests in CPIII is exercisable upon the earlier of (a) each limited partner having received distributions related to sales of the CPIII products equal to $15,000 per full limited partnership interest and the expiration of at least 24 months after the first commercial sale of a CPIII product or (b) the expiration of at least 48 months after the first commercial sale of a CPIII product; but, in any event, not prior to the expiration of the then applicable long-term capital gains holding period after the expenditure by the Company of all funds paid to it pursuant to the Development Agreement with CPIII. There have not as yet been any commercial sales of CPIII products. If the Company elects to exercise its option to purchase the limited partnership interests in CPIII, the Company must make an advance payment of approximately $13,598,000 in cash or, at the Company's election, approximately $15,229,000 in the Company's Common Stock, and future payments generally of six percent of sales of products developed by CPIII. If the Company exercises its CPIII purchase option, the Company expects that it would record a significant charge to earnings representing the purchase of in-process research and development. See Note 3 for a discussion of the option that Lilly has exercised to become the exclusive distributor for CentoRx, a cardiovascular product being developed by the Company for CPIII. The Company has entered into indemnity agreements with CPIII and the former limited partners of CCIP and CPII pursuant to which the Company would be obligated, under certain circumstances, to compensate these parties for the fair market value of their respective interests under any license agreements with the Company relating to their respective products which are lost through the exercise by the United States Government of any of its rights relating to the licensed technology. The amount of any such loss would be determined annually by independent appraisal. Royalties The Company is required to make certain future payments to the former limited partners of CCIP and CPII based on sales of products developed by each of the respective partnerships, including payments to the former limited partners of CPII based on any sales of HA-1A. Upon any exercise by the Company of its option to acquire the limited partnership interests in CPIII, 33 Notes to Consolidated Financial Statements the Company would be required to make future payments to the former limited partners of CPIII, including payments based on any sales of CentoRx. The Company has entered into agreements to support research at certain research institutions. These agreements, which grant the Company licenses and/or options to license certain technology resulting from the research, generally require the Company to pay royalties to such institutions on the sales of any products that utilize the licensed technology. Further, the Company has licenses under certain patents and pays the patent holders or their licensees royalties on sales of products covered by such patents. All royalties are reflected in cost of sales as incurred. Royalty costs represent a significant percentage of sales. Product Liability The testing and marketing of medical products entails an inherent risk of product liability. The Company maintains limited product liability insurance coverage. Such insurance is becoming increasingly difficult and expensive to obtain. The Company's business may be adversely affected by a successful product liability claim in excess of its insurance coverage. Under various contractual agreements, the Company has agreed to indemnify third parties against certain losses, including losses arising from product liability and patent infringement claims pertaining to the Company's products. Note 3 COLLABORATIVE ARRANGEMENTS Relationship with Eli Lilly and Company In July 1992, the Company and Lilly entered into various agreements pursuant to which Lilly made certain cash payments to the Company as further described below. During the second quarter of 1993, Lilly exercised its option to become the exclusive worldwide distributor of CentoRx and the Company and Lilly amended their Sales and Distribution Agreement. As part of the amendment Lilly has assisted the Company and will continue to assist the Company in the regulatory filings and continued development of CentoRx for various clinical indications. Under the Sales and Distribution Agreement, the Company is principally responsible for developing and manufacturing HA-1A and CentoRx and for securing regulatory approvals. Lilly is principally responsible for the marketing, selling and distribution of HA-1A and CentoRx after regulatory approvals. If approved, the Company will sell HA-1A and CentoRx to Lilly for Lilly's further sale to the end market. Under certain circumstances, such as acts of God, material breach of the agreement or bankruptcy by the Company, or in the event the Company cannot manufacture CentoRx, Lilly has the option to assume the manufacture of CentoRx and assure the continued supply of the product, even to the extent of acquiring the Company's related manufacturing assets at their independently appraised values. Lilly and the 34 Notes to Consolidated Financial Statements Company are cooperating in order to maximize the commercial potential of CentoRx. See Note 2 for a discussion of the Company's option to acquire the rights to CentoRx through its option to acquire the limited partnership interests in CPIII. As further described in Note 2, the Company and Lilly suspended sales and conducted a recall of HA-1A in Europe. Under an Investment Agreement, Lilly acquired two million newly issued shares of the Company's Common Stock for $50 million in 1992. The Company received an additional $50 million from Lilly primarily for reimbursement of expenses related to HA-1A. In 1993, Lilly paid the Company $5 million for the achievement of certain milestones related to CentoRx and may make certain future payments based on the achievement of additional milestones. The Company may be required to make a payment to Lilly of $60 million through December 31, 1994, or decreasing amounts through December 31, 1999, in the event of any change in control of the Company or in the event of any governmental action or determination which results in the Sales and Distribution Agreement not being in full force and effect in all material respects in major jurisdictions, excluding the United States, and the subsequent termination of the Sales and Distribution Agreement by Lilly based solely on such events. Relationship with Wellcome plc In 1993, Centocor and Wellcome entered into an alliance agreement for the development and marketing of certain of Centocor's monoclonal antibody-based cancer therapeutic products, including Panorex. Wellcome will contribute to the continuing clinical development of Panorex and up to six other potential drugs and then market and sell any approved drugs in most parts of the world. Under an Investment Agreement, Wellcome paid Centocor $20 million in exchange for two million newly issued shares of the Company's Common Stock. In addition, Wellcome paid Centocor a $10 million non-refundable license fee at the closing of the transaction, and may make certain future payments up to $70 million based on the achievement of milestones and the acquisition of certain manufacturing technologies. Note 4 CASH EQUIVALENTS AND INVESTMENTS Cash equivalents and investments consist principally of U. S. Treasury securities and bank certificates of deposit. Short-term investments at December 31, 1993 also include equity investments with carrying values of $2,800,000. Long-term investments also include certain equity investments with carrying values of $8,430,000 and $12,924,000 at December 31, 1993 and December 31, 1992, respectively. The aggregate market value of all short-term investments at December 31, 1993 and December 31, 1992 was $76,739,000 and $121,669,000, respectively. The aggregate market value of all long-term investments at December 31, 1993 and December 31, 1992 was $17,156,000 and $14,523,000, respectively. 35 Notes to Consolidated Financial Statements The Company has agreed to maintain investments of $26,375,000 at December 31, 1993 at certain banks as collateral for loans from those banks. See Notes 2 and 7. Note 5 INVENTORY Inventory consists of the following (in thousands):
December 31 1993 1992 ------- ------- Raw materials $ 3,791 $ 5,431 Work in process 8,388 9,675 Finished goods 1,695 1,752 ------- ------- $13,874 $16,858 ======= =======
Inventory at December 31, 1993 and December 31, 1992 includes $5,920,000 and $10,387,000, respectively of certain pharmaceutical products for which the Company has not yet obtained marketing approval, including certain raw materials to be used in the production of such inventories. See Note 2. Inventories have various expiration dates. The Company continually evaluates the extent of inventory reserves considered necessary based upon the future regulatory and commercial status of such products. There can be no assurance that reserves for inventories will not be required in the future. Note 6 ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
December 31, 1993 1992 ------- ------- Compensation $ 5,753 $ 5,824 Interest 6,506 5,254 Severance 1,158 8,038 Product recall 1,075 4,097 Other 8,635 11,344 ------- ------- $23,127 $34,557 ======= =======
Note 7 DEBT Note Payable Note payable at December 31, 1993 and 1992 consists of $6,186,000 and $6,593,000, respectively of borrowings under short-term notes at an interest rate of 6.4 percent per annum at December 31, 1993, payable in Dutch guilders no later than March 28, 1994. These borrowings are secured by investments at the lending bank of $6,375,000. 36 Notes to Consolidated Financial Statements Long-term debt Long-term debt consists of the following (in thousands):
December 31 1993 1992 --------- --------- 7-1/4 percent Notes $106,640 $106,640 6-3/4 percent Debentures 125,000 125,000 Mortgage Debt 16,134 22,803 Long-term Note 10,794 12,363 -------- -------- 258,568 266,806 Current Portion (20,468) (28,640) -------- -------- $238,100 $238,166 ======== ========
7-1/4 Percent Notes On January 28, 1991, the Company issued $106,645,000 principal amount of 7-1/4 percent Convertible Subordinated Notes (the "7-1/4 percent Notes") due February 1, 2001. The 7-1/4 percent Notes are convertible by the holders into approximately 3,843,000 shares of the Company's Common Stock at a conversion price of $27.75 per share at any time prior to redemption or maturity. The 7- 1/4 percent Notes are subordinated in right of payment to senior indebtedness at December 31, 1993 of $33,114,000 and all future senior indebtedness of the Company, and rank pari passu with the 6-3/4 percent Debentures described below. The 7-1/4 percent Notes are redeemable by the Company for cash in whole or in part until February 1, 2001 at amounts ranging up to 105 percent of the principal amount of the 7-1/4 percent Notes. The Company may be required to redeem the 7-1/4 percent Notes at their principal amount at the option of the holders of the 7-1/4 percent Notes in certain limited circumstances, including a change in control of the Company. 6-3/4 Percent Debentures On October 16, 1991, the Company issued $125,000,000 principal amount of 6-3/4 percent Convertible Subordinated Debentures (the "6-3/4 percent Debentures") due October 16, 2001. The 6-3/4 percent Debentures are convertible by the holders into approximately 2,049,000 shares of the Company's Common Stock at a conversion price of $61.00 per share at any time prior to redemption or maturity. The 6-3/4 percent Debentures are subordinated in right of payment to senior indebtedness at December 31, 1993 of $33,114,000 and all future senior indebtedness of the Company, and rank pari passu with the 7-1/4 percent Notes. The 6-3/4 percent Debentures are redeemable by the Company for cash in whole or in part until October 16, 2001 at amounts ranging up to 104 percent of the principal amount of the 6-3/4 percent Debentures, provided that prior to October 16, 1994, the 6-3/4 percent Debentures may not be redeemed unless for 30 successive trading days ending within 15 days of the date of the redemption notice the closing price of the Company's Common Stock as reported on the NASDAQ National Market System is at least 130 percent of the then effective conversion price of the 6-3/4 percent Debentures. The Company may be required to redeem the 6-3/4 percent Debentures at their principal amount at the option of the holders of the 6-3/4 percent Debentures in certain limited circumstances, including a change in control in the Company. 37 Notes to Consolidated Financial Statements Mortgage Debt Mortgage loans have been used to finance a portion of the acquisition and expansion of certain of the Company's facilities in the United States and The Netherlands. These loans are generally secured by the related land and buildings. In the United States, the Company has such a loan outstanding with a balance of approximately $6,526,000 at December 31, 1993 which bears interest at an annual rate of 10 percent through its maturity date of May 1, 1995. A Netherlands loan, with an outstanding balance of approximately $5,515,000 at December 31, 1993, is payable in Dutch guilders, bears interest at an annual rate of 8-1/4 percent through its final maturity date of September 30, 2011, and is secured by certain equipment, inventories, and accounts receivable. At December 31, 1993, this loan is classified as short-term (see "Loan Covenants"). In July 1993, the Company completed the sale of its St. Louis facility for $11,900,000 and in connection therewith, repaid $5,800,000 of debt related to this facility. Long-term Note The Company borrowed $10,793,000 under a 9-1/2 percent long-term note which is payable in Dutch guilders. This loan is secured by the same assets as the Netherlands loan discussed above. At December 31, 1993, this loan is classified as short-term (see "Loan Covenants"). Loan Covenants Agreements covering $20,402,000 of the Company's outstanding debt balances contain certain financial and non-financial covenants, including the maintenance of minimum equity and cash balances and compliance with certain financial ratios. The Company has obtained waivers of certain of such covenants on the condition that it maintains certain investments at the lending bank, which at December 31, 1993 totalled $20,000,000. There can be no assurance that the Company will be able to continue to collateralize such loans and, accordingly, the Company has classified $20,402,000 of debt as short-term. Additionally, $6,186,000 of the Company's short-term debt is secured by investments at the lending bank of $6,375,000. If cash flows continue to be negative, the Company's ability to service its debt may be impaired. Other Scheduled repayments on the mortgage debt and long-term note pursuant to the terms of the related loan agreements are $2,304,000 for 1994, $8,707,000 for 1995, $2,247,000 for 1996, $2,251,000 for 1997, $2,256,000 for 1998 and $9,163,000 due thereafter. The fair market value of the Company's long-term debt at December 31, 1993, principally determined by quoted market prices, was $192,637,000 as compared to its carrying value of $238,100,000. The carrying amount of the Company's debt classified as short-term at December 31, 1993 approximates its fair market value. 38 Notes to Consolidated Financial Statements Note 8 SHAREHOLDERS' EQUITY Capital Stock In December 1993, the Company issued 2,000,000 shares of its Common Stock pursuant to the terms of an agreement with Wellcome as described in Note 3. Additionally, in August 1992, the Company issued 2,000,000 shares of its Common Stock pursuant to the terms of an Investment Agreement with Lilly as described in Note 3. At December 31, 1993, approximately 27,901,000 shares of Common Stock were reserved for issuance upon exercise of warrants and stock options, pursuant to employee retirement savings and stock award plans and agreements, and upon conversion of convertible debt securities. Additionally, at December 31, 1993, approximately 358,000 shares of preferred stock were reserved for issuance under a shareholder rights plan which is further described below. Further, in March 1994, the Company issued approximately 6,793,000 shares of its Common Stock in connection with an Exchange Offer. See Note 18. Warrants In January 1992, the Company and Tocor II completed the sale to the public of 2,250,000 units, each unit consisting of one share of callable common stock of Tocor II, one Series T warrant, and one callable warrant. The net proceeds of the offering were used by Tocor II principally to engage the Company to conduct research and development under contract (see Notes 10 and 18). In connection with the issuance of the Series T warrants, the Company recorded a deferred asset in an amount equal to the value of those warrants. Such asset was amortized over the term of the research and development contract. 39 Notes to Consolidated Financial Statements At December 31, 1993, warrants to purchase approximately 12,833,000 shares of the Company's Common Stock were outstanding. The specific exercise prices per share and exercise periods of such warrants are set forth below (in thousands except per share amounts):
Shares Issuable Upon Exercise Exercise Period Exercise Price Per Share - --------------- --------------- ------------------------ 5,442 Through December 31, 1994 $11.25 1,475 Through February 28, 1995 $19.33 882 Through February 28, 1995 $16.66 534 Through February 28, 1996 $10.83* 2,250 January 1, 1994 through December 31, 1996 $64.50** 2,250 January 1, 1996 through December 31, 1997 $49.75***
* The exercise price increases by $2.50 per share for the last two years of the exercise period. ** See Note 18. *** These warrants are callable. The exercise price may vary depending on the closing price of the Company's Common Stock over a certain period, but shall in no event be less then $49.75 per share. See Note 18. Stock Option and Restricted Stock Award Plans The Company maintains stock option plans pursuant to which options to purchase a total of approximately 8,650,000 shares of its Common Stock have been authorized for grant to the Company's employees and to its non-employee directors. Under the terms of these plans, the option exercise price may not be less than the fair market value of the underlying stock at the time the option is granted. The options granted under these plans generally expire upon the earlier of the termination of the optionee's employment or service or ten years from the date of the grant. Additionally, non-qualified stock options have been granted to certain directors and employees of, and certain consultants to, the Company pursuant to non-qualified stock option agreements with terms similar to those set forth in the plans. The following table summarizes the activity with respect to the Company's stock options (in thousands except per share amounts):
Year ended December 31, 1993 1992 1991 Options Exercise Price Options Exercise Price Options Exercise price Outstanding, beginning of year 5,948 $ 7.38-56.00 6,126 $ 7.38-53.50 5,202 $ 7.38-23.38 Granted 2,681 $6.50-14.125 2,974 $8.375-58.50 1,438 $19.38-53.50 Exercised (304) $7.375-12.00 (420) $ 7.38-16.00 (380) $ 7.38-15.13 Canceled (2,555) $6.875-56.00 (2,732) $ 7.38-58.50 (134) $ 7.38-32.25 ------ ------------ ------ ------------ ----- ------------ Outstanding, end of year 5,770 $ 6.50-53.50 5,948 $ 7.38-56.00 6,126 $ 7.38-52.50 ====== ============ ====== ============ ===== ============
During 1993 and 1992, a substantial number of outstanding options were canceled in exchange for the grant of fewer options with an exercise price equal to the fair market value at date of grant of $7.125 per share in 1993 and $12.625 in 1992. At December 31, 1993, options 40 Notes to Consolidated Financial Statements to purchase a total of approximately 2,726,000 shares of Common Stock were exercisable, and approximately 3,044,000 options become exercisable as follows (in thousands):
Year ending December 31, Shares - ------------------------ ------ 1994 996 1995 1,095 1996 533 1997 420
The Company maintains a Restricted Common Stock Award Plan, pursuant to which a total of approximately 2,000,000 shares of the Company's Common Stock have been authorized for award to eligible employees. The number of shares awarded in each year and the terms under which such shares vest are determined by the Board of Directors at the time of the award. Generally, a portion of the shares awarded vests annually over a period of five years from the date of the award. As of December 31, 1993, awards of approximately 359,000 shares of the Company's Common Stock were outstanding and are scheduled to vest in the following periods (in thousands):
Year ending December 31, Shares - ------------------------ ------ 1994 122 1995 85 1996 67 1997 46 1998 39
The terms of options unexercisable as of December 31, 1993 for an aggregate of approximately 1,515,000 shares and restricted stock awards unvested as of December 31, 1993 for an aggregate of approximately 229,000 shares provide for the acceleration of the exercisability of such options and the vesting of such restricted stock awards upon the occurrence of certain events constituting a change in control of the Company. Further, in such event, the holders of approximately 2,808,000 options may then choose to receive cash through the exercise of a limited stock appreciation right in lieu of exercising their options. Qualified Savings and Retirement Plan The Company maintains a Qualified Savings and Retirement Plan for the benefit of its employees. Employees' benefits are based solely on the employees' discretionary contributions and the Company's discretionary matching contributions, which the Company generally makes in its Common Stock. Employee contributions to the Plan may be invested in various instruments, including the Company's Common Stock, at the discretion of the employee. Shareholder Rights Plan The Company maintains a Shareholder Rights Plan ("Rights Plan"). Under the Rights Plan, each common shareholder receives one-half of one Right (a "Right") for each share of Common Stock held. Each Right entitles the holder to purchase from the Company one one- 41 Notes to Consolidated Financial Statements hundredth of a share of Series A Preferred Stock at an exercise price of $170. The Rights will become exercisable and will detach from the Common Stock in the event any individual or group acquires 20 percent or more of the Common Stock, or announces a tender or exchange offer which, if consummated, would result in the ownership by that person or group of at least 30 percent of the Common Stock. If, following an acquisition of 20 percent or more of the Common Stock, the Company is acquired by any person in a merger or other business combination transaction or sells more than 50 percent of its assets or earning power to any person, each Right will entitle the holder to purchase, for the exercise price, common stock of the acquiring company with a value of twice the exercise price. In addition, if any person acquires 30 percent or more of the Common Stock, each Right will entitle the holder, other than an acquiring person, to purchase Common Stock of the Company with a value of twice the exercise price. The Rights also provide for protection against self-dealing transactions by a 20 percent shareholder. The Company may redeem the Rights at $.02 per Right at any time until the tenth day after the acquisition by a person or group beneficially owning 20 percent or more of its Common Stock. The Rights will expire on September 26, 1998 unless earlier redeemed. Note 9 GEOGRAPHIC AND CUSTOMER INFORMATION
Geographic Information (in thousands) Identifiable Year ended December 31, Revenue Loss assets 1993 United States $ 66,655 $ (72,601) $211,411 Europe 9,275 (1,778) 69,628 -------- --------- -------- $ 75,930 $ (74,379) $281,039 ======== ========= ======== 1992 United States $108,181 $(184,547) $272,312 Europe 18,051 (9,599) 76,956 -------- --------- -------- $126,232 $(194,146) $349,268 ======== ========= ======== 1991 United States $ 45,142 $(194,625) $362,389 Europe 8,055 (930) 110,540 -------- --------- -------- $ 53,197 $(195,555) $472,929 ======== ========= ========
In January 1992, the Company acquired, for approximately $8,700,000 in cash, all of the outstanding shares of Mercia. The transaction was recorded as a purchase and resulted in $6,711,000 of goodwill which is being amortized over a 20-year period. The totals for Europe in the above table include the operations of Mercia from January 1992. Customer Information Sales to three distributors of the Company's diagnostic products accounted for 42 percent, 40 percent, and 48 percent of total product sales in 1993, 1992, and 1991, respectively. 42 Notes to Consolidated Financial Statements Approximately 88 percent, 90 percent, and 83 percent of total product sales in 1993, 1992, and 1991, respectively, are attributable to shipments to customers outside of the United States. Note 10 CONTRACT REVENUES Lilly Related ------------- For the years ended December 31, 1993 and 1992, the Company recognized $5,000,000 and $50,000,000, respectively, of revenues pursuant to the Company's agreements with Lilly as further described in Note 3. Wellcome Related ---------------- During the year ended December 31, 1993, the Company recognized $10,000,000 of revenues pursuant to the Company's agreements with Wellcome as further described in Note 3. Related Party Research & Development ------------------------------------ During 1992 and 1993, the Company conducted research and development under contract with Tocor II. Under the contract, the Company received reimbursement of its costs plus a management fee. Such revenues were recorded net of amortization of deferred costs resulting from the issuance of warrants to Tocor II Unitholders (see Note 8). Additionally, the Company recorded revenue of $2,500,000 in 1992 representing a non-refundable fee from Tocor II in connection with the license of certain technology by the Company to Tocor II. The Company amended the contract and a services agreement between the Company and Tocor II, in accordance with the settlement of the litigation described in Note 2, and reduced the management fee the Company is to receive in connection with the Tocor II research program from 10 percent to 5 percent. See Note 18 for a discussion of an exchange offer which resulted in the termination of the research and development contract and services agreement. In 1991, the Company performed research and development services under contracts with Tocor and CPII. In 1991, the Company acquired the callable common stock of Tocor and in 1992, the limited partnership interests in CPII. 43 Notes to Consolodated Financial Statements Revenues and expenses, including general and administrative expenses, related to the research programs of Tocor II, Tocor, and CPII were as follows (in thousands):
Year ended December 31, 1993 1992 1991 ------- ------- ------- Revenues: CPII $ - $ - $ 879 Tocor - - 4,023 Tocor II 10,109 16,071 - ------- ------- ------ $10,109 $16,071 $4,902 ======= ======= ====== Expenses: CPII $ - $ - $ 768 Tocor - - 5,115 Tocor II 11,741 15,047 - ------- ------- ------ $11,741 $15,047 $5,883 ======= ======= ======
Not included in the above table are expenses of $19,389,000, $27,675,000, and $47,392,000, for the years ended December 31, 1993, 1992, and 1991, respectively, representing aggregate CPII, CPIII, and Tocor research costs funded by the Company in order to continue the progress of the research programs and to preserve the value of its purchase options (see Notes 2 and 11). Other The Company has entered into various commercialization agreements under which it has recognized revenues from non-refundable fees or milestone payments in support of its research and development efforts. Revenues recorded under these agreements amounted to $2,750,000, $1,767,000, and $3,606,000, for the years ended December 31, 1993, 1992, and 1991, respectively. Note 11 CHARGE FOR ACQUIRED RESEARCH AND DEVELOPMENT In June 1991, the Company issued approximately 2,057,000 shares of its Common Stock as payment of the Tocor option exercise price of $69,000,000. Additionally, the Company purchased the remaining 105,000 outstanding shares of Tocor callable common stock for $2,520,000 from directors of Tocor who acquired such Tocor shares through exercise of stock options granted to them under the Tocor 1989 Directors' Non-Qualified Stock Option Plan, which was approved by Tocor stockholders in 1990. The cost of the above transaction has been allocated principally to the Tocor technology acquired, and the Company recorded a charge to earnings in the second quarter of 1991 of $70,147,000 representing the purchase of in- process research and development. 44 Notes to Consolodated Financial Statements Note 12 OTHER INCOME (EXPENSES) During 1992, the Company recorded a charge to earnings of $11,245,000 in connection with the settlement of certain class action securities litigation (see Note 2). During 1993 and 1992, the Company recorded a charge to earnings of $2,477,000 and $2,296,000, respectively, representing an unrealized loss due to the other than temporary decline in the market value of marketable equity investments below the Company's cost for such investments. Other income (expenses) in 1992 include gains of $1,170,000 from sales of the Company's investments. Other income (expenses) also includes the CPIII share of the earnings of the joint venture between the Company and CPIII. Note 13 INCOME TAXES Differences between the Company's (benefit) for income taxes for 1993, 1992, and 1991 and that computed by applying the statutory Federal income tax rate consist of the following (in thousands):
Year ended December 31, 1993 1992 1991 --------- ---------- ---------- Statutory Federal income tax benefit based upon loss before income taxes $(26,033) $(66,010) $(66,489) Charges for acquired research and development - - 23,850 Taxes exempt on income of foreign sales corporation - - (691) Benefit not recorded 26,033 65,116 43,246 Other items, including certain non-deductible expenses - 894 84 -------- -------- -------- $ - $ - $ - ======== ======== ========
The Company recorded a charge for acquired research and development of $70,147,000 in 1991, which was not fully deductible for tax purposes in the year incurred. The ultimate amount and timing of the deductions related to this charge is uncertain; however, the Company believes that a portion of the charge may be deductible for tax purposes over the estimated useful life of the related technology acquired. At December 31, 1993, the tax effect of the Company's federal net tax loss carryforwards was $117,681,000 with expiration dates ranging from 2005 to 2008. Additionally, at December 31, 1993, the Company had research and development tax credits of $3,576,000 with expiration dates ranging from 1999 to 2007, and minimum tax credits of $381,000, which do not expire. Further, the tax effect of inventory reserves that are not currently deductible at December 31, 1993 were $20,682,000. Realization of net deferred tax assets related to these items is dependent on future earnings, which are uncertain. Accordingly, a valuation reserve was recorded by the Company and, therefore, the Company had no net deferred tax assets at December 31, 1993. 45 Notes to Consolodated Financial Statements Note 14 LEASES The Company is lessee under various non-cancelable operating leases, covering certain of the Company's facilities and equipment. The facility leases generally provide for the Company to pay all taxes and operating costs associated with the facility. The aggregate minimum rental commitments of leases are as follows (in thousands):
Year ending December 31, 1994 $2,414,000 1995 1,945,000 1996 1,363,000 1997 1,378,000 1998 1,294,000 Thereafter 5,224,000
Rent expense was $5,428,000, $9,665,000, and $6,412,000 for the years ended December 31, 1993, 1992, and 1991, respectively. Note 15 SUPPLEMENTAL INFORMATION ON CASH FLOWS Interest paid, net of amounts capitalized of $800,000 in 1991, was $19,421,000, $19,703,000, and $6,405,000, in 1993, 1992 and 1991, respectively. Income tax payments of $46,000, $70,000 and $270,000 were made in 1993, 1992 and 1991, respectively. Cash used for the purchases of investments as well as the cash received upon the maturities and sales of investments were as follows (in thousands):
Year ended December 31, 1993 1992 1991 ---------- ---------- ---------- Purchases $(168,643) $(135,603) $(273,298) Maturities and sales 203,840 222,896 142,021 --------- --------- --------- $ 35,197 $ 87,293 $(131,277) ========= ========= =========
During 1992, the Company issued warrants to purchase 4,500,000 shares of Common Stock, resulting in a noncash increase to additional paid-in capital of $14,625,000. As further described in Note 11, the Company's exercise of its option to purchase the callable common 46 Notes to Consolodated Financial Statements stock of Tocor resulted in a noncash increase to additional paid-in capital of $68,979,000 in 1991. During 1992, the Company acquired $2,134,000 of fixed assets by assuming the related debt obligation. Note 16 QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands except per share data Three Months Ended March 31 June 30 September 30 December 31 - ------------------ -------- ------- ------------ ----------- 1993 Total revenues $14,978 $13,753 $16,729 $30,470 Sales 11,684 10,918 12,048 13,421 Gross profit from sales 7,790 6,935 8,206 9,321 Net loss (25,529)(1) (26,022)(1) (15,804) (7,024)(2) Net loss per share ($ .62) ($ .63) ($ .38) ($.17) 1992 Total revenues $21,722 $20,465 $50,683 $33,362 Sales 16,121 15,981 17,294 8,998 Gross profit from sales 10,227 9,493 10,692 6,218 Net loss (45,848)(2) (39,643) (18,995)(3) (89,660)(2)(3)(4) Net loss per share ($1.20) ($1.02) ($.47) ($2.18)
(1) During the first and second quarters of 1993, the Company recorded restructuring charges of $4,273,000 and $5,114,000, respectively, representing reserves for fixed assets no longer used or subsequently disposed in the first quarter and severance related costs in the second quarter (See Note 17). (2) During the first and fourth quarters of 1992 and the fourth quarter of 1993, the Company recorded reserves of $9,000,000 and $55,877,000, and $3,500,000, respectively, relating to HA-1A inventories (see Note 2). (3) During the third and fourth quarters of 1992, the Company recorded restructuring charges of $7,861,000 and $7,405,000, respectively, representing principally severance costs. (4) During the fourth quarter of 1992 the Company recorded a charge to earnings of $11,245,000 in connection with the settlement of certain litigation (see Note 2). 47 Notes to Consolodated Financial Statements Note 17 RESTRUCTURING CHARGES During 1993 and 1992, the Company recorded restructuring charges of $9,387,000 and $15,266,000, consisting principally of severance-related costs incurred in connection with the further downsizing of its workforce and reserves for certain fixed assets which are no longer used or have been subsequently disposed. As a result of the downsizing of the Company's staff and present level of operations, the Company currently maintains idle facilities and equipment. The Company continually evaluates the future needs for its facilities and equipment. There can be no assurance that reserves to further reduce the carrying value of certain fixed assets or other restructuring charges will not be required in the future. Note 18 SUBSEQUENT EVENT In February 1994, the Company initiated an Exchange Offer, pursuant to which the Company offered to exchange 3.2 shares of its Common Stock for each of the 2,250,000 outstanding Tocor II Units tendered. Each Unit consists of one share of callable common stock of Tocor II, one callable warrant to purchase one share of Centocor Common Stock and one Series T warrant to purchase one share of Centocor Common Stock (the "Warrants"). No fractional shares of Centocor Common Stock will be issued. The expiration date of the Exchange Offer was March 11, 1994. With respect to the Tocor II Units not tendered, the Company would issue 2.88 shares of its Common Stock in exchange for the remaining Tocor II callable common stock in a merger transaction which is expected to be completed by March 31, 1994 (the "Second-Step Transaction"). Non-tendering Tocor II Unitholders would retain their Warrants. On March 11, 1994, the Company accepted 94 percent of the Tocor II Units tendered pursuant to the Exchange Offer, and the Company exchanged 3.2 shares of its Common Stock for each Tocor II Unit tendered. As a result of the Exchange Offer and the Second-Step Transaction, the Company will issue approximately 7,159,000 shares of its Common Stock. The transaction will be accounted for as a purchase and the Company will allocate the excess of the consideration paid over the net assets of Tocor II to the value of the acquired research and development. The Company will record a charge to earnings in the first quarter of 1994 of approximately $36,454,000 representing principally the cost of acquired research and development. The unaudited pro forma condensed balance sheet, assuming the Exchange Offer was consummated as of December 31, 1993, and statement of operations data excluding the 48 Notes to Consolodated Financial Statements charge for acquired research and development assuming the Exchange Offer was consummated as of January 1, 1993, would have been as follows:
(in thousands except per share data) Balance Sheet Data December 31, 1993 - -------------------------------------- ----------------- Cash and short-term investments $174,366 Other current assets 29,735 Fixed assets, net 84,683 Long-term and other assets 34,582 -------- $323,366 ======== Current liabilities $ 59,338 Long-term debt 238,100 Other long-term liabilities 2,023 Minority interest 4,901 Shareholders' equity 19,004 -------- $323,366 ========
For the year ended Statement of Operations Data December 31, 1993 - ---------------------------- ----------------- Revenues $ 65,821 Loss $(83,143) Loss per share $(1.72)
49 REPORT OF MANAGEMENT The consolidated financial statements presented in this report have been prepared by the Company's management in conformity with generally accepted accounting principles from the Company's financial records. The Company's management is responsible for all information and representations made in those financial statements and for their integrity and objectivity. In those cases where judgment and best estimates are necessary, appropriate consideration is given to materiality in the preparation of the financial statements. The Company's management has also prepared the other information in this report and is responsible for its accuracy and consistency with the financial statements. The Company's management has designed systems of internal accounting controls to provide reasonable, but not absolute, assurance that assets are safeguarded from unauthorized use or disposition, and that transactions are recorded according to management's policies and procedures. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal accounting control and that the costs of such systems should not exceed the benefits to be derived. These systems are continually reviewed and modified, where appropriate, to maintain such assurance. Additionally, in connection with their annual audit, independent auditors perform examinations in accordance with generally accepted auditing standards, which include a review of the system of internal accounting controls to the extent necessary in order to determine the nature, timing, and extent of audit tests to be applied on the financial statements. The Company's management believes that the Company's system of internal accounting controls is adequate to accomplish the objectives discussed herein. The selection of the Company's independent auditors, KPMG Peat Marwick, has been approved by the Company's Board of Directors. An Audit Committee of the Board of Directors, composed of three non-management directors, meets with, and reviews the activities of, corporate financial management and the independent auditors to ascertain that each is properly discharging its responsibilities. The independent auditors also meet separately with the Audit Committee without management present, to discuss the results of their work, the adequacy of internal accounting controls, and the quality of financial reporting. 50 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, Centocor, Inc.: We have audited the accompanying consolidated balance sheets of Centocor, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1993. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Centocor, Inc. and subsidiaries as of December 31, 1993 and 1992 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick Philadelphia, Pennsylvania March 11, 1994 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON - --------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ DIRECTORS OF THE REGISTRANT The following table sets forth, as of March 1, 1994, information as to the directors of the Company, including their recent employment, positions with the Company, other directorships and age. Directors are elected to serve one-year terms.
Name, Principal Occupations and Year First Businesses During Last Five Years Elected and Other Current Directorships Age Director - ------------------------------- --- -------- Anthony B. Evnin........... 52 1980 General Partner of Venrock Associates, a venture capital limited partnership. Director, AgriDyne Technologies Inc., ARRIS Pharmaceutical Corporation, Athena Neurosciences, Inc., BioSurface Technology, Inc., Dianon Systems, Inc., Genetics Institute, Inc., IDEXX Laboratories, Inc., Intelligent Surgical Lasers, Inc., Kopin Corporation, Opta Food Ingredients, Inc. and Sepracor, Inc. William F. Hamilton........ 54 1985 Landau Professor of Management and Technology at the Wharton School of the University of Pennsylvania. Director, Hunt Manufacturing Co., Marlton Technologies, Inc. and Neose Pharmaceuticals, Inc.
52
Name, Principal Occupations and Year First Businesses During Last Five Years Elected and Other Current Directorships Age Director - ------------------------------- --- -------- Antonie T. Knoppers......... 79 1986 Self-employed business consultant. Former President, Chief Operating Officer and Vice Chairman, Merck & Co., Inc., a research-based health products company. Trustee, The Salk Institute. Director, Agouron Pharmaceuticals, Inc. Hubert J.P. Schoemaker...... 43 1983 Chairman of the Board since November 1987; Chief Executive Officer of the Company from November 1987 to October 1992; President of the Company from 1983 to 1987. Director, Alkermes, Inc., Corvas International, Inc. and Safeguard Scientifics, Inc. Lawrence Steinman.......... 46 1991 Professor of Neurology and Neurological Sciences and Pediatrics, Stanford University School of Medicine since 1991 and Associate Professor of Neurology, Pediatrics and Genetics, Stanford University School of Medicine from 1985 to 1991.
53
Name, Principal Occupations and Year First Businesses During Last Five Years Elected and Other Current Directorships Age Director - ------------------------------- --- -------- Jean C. Tempel.............. 50 1993 Executive Vice President, Safeguard Scientifics, Inc., an entrepreneurial technology company, manager of Safeguard Scientifics, Inc.'s New England activities, and Managing Director of Technology Leaders L.P., a venture capital fund, since November 1993; President and Chief Operating Officer of Safeguard Scientifics, Inc. from January 1992 to November 1993; Principal, Tempel Partners, Inc., a management consulting firm, from 1991 to January 1992; Executive Vice President and Chief Operations Officer, The Boston Company, a bank trust company, from 1988 to 1990. Director, Cambridge Technology Partners Inc., CompuCom Systems Inc. and Safeguard Scientifics Inc.
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") requires that the officers and directors of a corporation, such as the Company, that has a class of equity securities registered under Section 12 of the Exchange Act, file reports of their ownership of such securities, as well as monthly statements of changes in such ownership, with the Securities and Exchange Commission (the "Commission") and the National Association of Securities Dealers, Inc. Based upon written representations received by the Company from its officers and directors, and the Company's review of the monthly statements of changes filed with the Commission by its officers and directors during 1993, the Company believes that following Ms. Tempel's election as a director of the Company, the Company did not timely file a Form 3 on her behalf. 54 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, who are elected to serve at the discretion of the Board of Directors, are as follows:
Name Age Position ---- --- -------- David P. Holveck 48 President and Chief Executive Officer Stephen D. Hayter 55 Executive Vice President - Diagnostics Division Bobba Venkatadri 50 Executive Vice President - Pharmaceutical Division Timothy P. Cost 34 Senior Vice President - Investor Relations and Strategic Operations Martin R. Page 49 Senior Vice President - Worldwide Regulatory Affairs James N. Woody 51 Senior Vice President, Chief Scientific Officer and Director - Research and Development Division
Mr. Holveck has been associated with Centocor since June 1983, as President and Chief Executive Officer since November 1992, as President and Chief Operating Officer from April 1992 to October 1992, as Executive Vice President and President - Diagnostics Division from December 1988 to April 1992, and as Executive Vice President - In Vitro Diagnostic Products from April 1987 to December 1988. Mr. Hayter has been associated with Centocor since February 1993 as Executive Vice President - Diagnostics Division. Previously, Mr. Hayter was Executive Vice President and General Manager for the Americas and Far East for the Diagnostics Division of Cambridge Biotech, Inc., a biotechnology company, from January 1991 to January 1993, and President of ADI Diagnostics, Inc., an in-vitro diagnostics company, from June 1987 to January 1991. Mr. Venkatadri has been associated with Centocor since March 1992, as Executive Vice President - Pharmaceutical Division since August 1992, and as Vice President - Pharmaceutical Manufacturing from March 1992 to August 1992. Previously, Mr. Venkatadri was Senior Director of Pharmaceutical Operations for Warner-Lambert Puerto Rico, Inc., a division of Warner-Lambert Company, from October 1990 to February 1992, and President and Director 55 of P. T. Warner-Lambert Indonesia, an affiliate of Warner-Lambert Company, from March 1988 to October 1990. Mr. Cost has been associated with Centocor since January 1994, as Senior Vice President - Investor Relations and Strategic Operations. Previously, Mr. Cost was Director of Investor Relations for Eastman Kodak Company from October 1991 to December 1993, and Director of Strategic Planning for Worldwide Manufacturing for Eastman Kodak Company from June 1989 to October 1991. Mr. Page has been associated with Centocor since September 1987, as Senior Vice President - Worldwide Regulatory Affairs since August 1992, as Vice President - Worldwide Regulatory Affairs from June 1990 to August 1992, and as Vice President - International Regulatory Affairs from September 1987 to June 1990. Dr. Woody has been associated with Centocor since August 1991, as Chief Scientific Officer since August 1992, and as Senior Vice President and Director - - Research and Development since August 1991. Previously, Dr. Woody served as Commanding Officer of the U.S. Navy Medical Research and Development Command from 1988 to 1991 and Director and Commanding Officer of the U.S. Navy Medical Research Unit No. 3, Cairo, Egypt from 1985 to 1988. 56 ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- EXECUTIVE COMPENSATION AND OTHER INFORMATION Summary of Cash and Certain Other Compensation The following table sets forth, for the fiscal years ended December 31, 1993, 1992 and 1991, the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years, to each of the five most highly compensated key policy-making executive officers of the Company in all capacities in which they served. Cash bonuses are stated in the year for which they are awarded, whether paid or accrued. SUMMARY COMPENSATION TABLE
Long-Term Compensation Annual Compensation Awards Payouts (a) (b) (c) (d) (e) (f) (g) (h) (i) Securities Other Restricted Underlying Name and Annual Stock Options/ LTIP All Other Principal Compensa- Award(s) SARs Payouts Compensation Position Year Salary($) Bonus($) tion ($) ($)(1) (#)(2) ($) ($)(3) --------- --- --------- -------- ---------- ------- -------- ------- ------------ David P. Holveck 1993 $279,000 $50,000 $ 80,000 174,000 $6,146 President and Chief 1992 $238,000 - - $220,000 50,000 $5,829 Executive Officer 1991 $179,000 $65,000 - $294,750 50,000 $2,543 Stephen D. Hayter(4) 1993 $151,000 $30,000 $79,491(8) $125,000 70,000 $5,101 Executive Vice President 1992 - - - - - - Diagnostics Division 1991 - - - - - - Bobba Venkatadri(5) 1993 $200,000 $30,000 - $ 40,000 60,000 $4,832 Executive Vice President 1992 $135,000 $10,000 - $ 65,000 70,000(7) $4,553 Pharmaceutical Division 1991 - - - - - - Martin R. Page 1993 $183,000 $12,500 - $ 40,000 40,000 $4,660 Senior Vice President, 1992 $178,000 - - - 25,200(7) $4,682 Worldwide Regulatory 1991 $160,000 $16,000 - $326,125 - - Affairs James N. Woody(6) 1993 $241,000 $20,000 - $ 80,000 110,000 $5,657 Senior Vice President, 1992 $213,000 - - $165,000 20,000 $5,148 Chief Scientific Officer 1991 $ 75,000 $50,000 - $488,750 120,000 $2,044 and Director - Research and Development Division
57 (1) The 35,000 shares awarded to Mr. Holveck under the Company's 1983 Restricted Common Stock Award Plan (the "1983 Award Plan") during the three fiscal years ended December 31, 1993 vest 20% each year for five consecutive years after the award. At December 31, 1993, Mr. Holveck held unvested awards under the 1983 Award Plan for an aggregate of 36,200 shares with a market value of $429,875. The 15,000 shares awarded to Mr. Hayter under the 1983 Award Plan during the fiscal year ended December 31, 1993 vest 20% each year for five consecutive years after the award. At December 31, 1993, Mr. Hayter held unvested awards under the 1983 Award Plan for an aggregate of 15,000 shares with a market value of $178,125. The 10,000 shares awarded to Mr. Venkatadri under the 1983 Award Plan during the two fiscal years ended December 31, 1993 vest 20% each year for five consecutive years after the award. At December 31, 1993, Mr. Venkatadri held unvested awards under the 1983 Award Plan for an aggregate of 9,000 shares with a market value of $106,875. The 12,500 shares awarded to Mr. Page under the 1983 Award Plan during the three fiscal years ended December 31, 1993 vest 20% each year for five consecutive years after the award. At December 31, 1993, Mr. Page held unvested awards under the 1983 Award Plan for an aggregate of 13,100 shares with a market value of $155,565. The 32,000 shares awarded to Dr. Woody under the 1983 Award Plan during the three fiscal years ended December 31, 1993 vest 20% each year for five consecutive years after the award. At December 31, 1993, Dr. Woody held unvested awards under the 1983 Award Plan for an aggregate of 25,600 shares with a market value of $304,000. The vesting of all of the foregoing unvested shares may be accelerated under certain events constituting a change in control of the Company. The Company has not paid any dividends on its Common Stock and does not expect to pay any dividends in the foreseeable future. (2) All of the options granted to Mr. Holveck, Mr. Hayter and Dr. Woody in the three fiscal years ended December 31, 1993, the 60,000 options granted to Mr. Venkatadri in 1993, and the 40,000 options granted to Mr. Page in 1993, were granted in tandem with limited stock appreciation rights. (3) All of such amounts constitute contributions made by the Company to the Company's Qualified Savings and Retirement Plan for the accounts of the named executive officers. (4) Mr. Hayter joined the Company on February 16, 1993. (5) Mr. Venkatadri joined the Company on March 2, 1992. 58 (6) Dr. Woody joined the Company on August 1, 1991. (7) Although Mr. Venkatadri was granted an aggregate of 110,000 options during 1992, 30,000 of such options were granted in exchange for 40,000 options at a higher exercise price which were surrendered pursuant to an Option Exchange Program (the "1992 Exchange Program"). The 40,000 options surrendered pursuant to the 1992 Exchange Program were granted to Mr. Venkatadri in 1992. While such 1992 Exchange Program was not offered to executive officers of the Company, Mr. Venkatadri was permitted to participate since he was not an executive officer at the time such 1992 Exchange Program was offered. Although Mr. Page was granted an aggregate of 33,200 options during 1992, 5,200 of such options were granted in exchange for 8,000 options at a higher exercise price which were surrendered pursuant to the 1992 Exchange Program. The 8,000 options surrendered pursuant to the 1992 Exchange Program were granted to Mr. Page in 1992. While such 1992 Exchange Program was not offered to executive officers of the Company, Mr. Page was permitted to participate since he was not an executive officer at the time such 1992 Exchange Program was offered. (8) Of such amount, $68,202 and $11,289 constituted relocation expenses and an automobile allowance, respectively. 59 Stock Options and Stock Appreciation Rights The following table sets forth information concerning the grant of stock options and tandem limited stock appreciation rights under the Company's 1987 Non-Qualified Stock Option Plan to the executive officers named in the Summary Compensation Table during the fiscal year ended December 31, 1993: Option/LSAR Grants in Last Fiscal Year
Number of Potential Realizable Value Securities % of Total at Assumed Annual Rates of Underlying Options/LSARs Stock Price Appreciation for Options/LSARs Granted Expira- Option Term Granted to Employees Exercise tion --------------------------- Name (#)(1)(5) in Fiscal Year(2) Price ($/Sh)(3) Date(4) 5% ($) 10% ($) ---- ------------- ----------------- --------------- ------- --------- ----------- David P. Holveck 4,000(6) .2% $7.625 7/28/03 $ 19,200 $ 48,600 150,000(7) 5.8% $7.125 5/13/03 $672,100 $1,703,300 20,000(8) .8% $6.875 3/3/03 $ 86,500 $ 219,100 Stephen D. Hayter 30,000(7) 1.2% $7.125 5/13/03 $134,400 $ 340,700 40,000(9) 1.5% $ 6.50 2/16/03 $163,500 $ 414,400 Bobba Venkatadri 40,000(7) 1.5% $7.125 5/13/03 $179,200 $ 454,200 20,000(8) .8% $6.875 3/3/03 $ 86,500 $ 219,100 Martin R. Page 30,000(7) 1.2% $7.125 5/13/03 $134,400 $ 340,700 10,000(8) .4% $6.875 3/3/03 $ 43,200 $ 109,600 James N. Woody 50,000(7) 1.9% $7.125 5/13/03 $224,000 $ 567,800 60,000(8) 2.3% $6.875 3/3/03 $259,400 $ 657,400
(1) The exercisability of all of the options will accelerate upon the occurrence of certain events constituting a change in control of the Company. (2) 670,406 of the options granted to employees in 1993 were granted in exchange for 791,377 options at higher exercise prices which were surrendered pursuant to a 1993 Option Exchange Program. (3) The price payable upon exercise of options may be paid in cash, property, services rendered, or, under certain circumstances, in shares of the Company's Common Stock having a fair market value equal on the date of exercise to the exercise price, or any combination thereof. (4) Each of the options generally expires upon the earlier of six months after the employee's termination of employment or the expiration date noted above. 60 (5) All of the options were granted in tandem with limited stock appreciation rights ("LSARs"). LSARs may be exercised only upon the occurrence of certain events constituting a change in control of the Company, only during the 30-day period following shareholder approval of any such event (but may not in any event be exercised for six months after the date of grant of the LSAR), and will be exercisable only if and to the extent that the options to which they relate are exercisable. For each share for which an LSAR is exercised, the optionee will receive an amount in cash equal to the difference between (1) the exercise price per share of the option to which the LSAR relates and (2) the fair market value per share of the Common Stock issuable upon exercise of the option on the date the LSAR is exercised. (6) Such options first become exercisable as to one-half of the option shares on July 28, 1995, one-quarter of the option shares on July 28, 1996, and one- quarter of the option shares on July 28, 1997. (7) Such options first become exercisable as to one-half of the option shares on May 13, 1995, one-quarter of the option shares on May 13, 1996, and one- quarter of the option shares on May 13, 1997. (8) Such options first become exercisable as to one-half of the option shares on March 3, 1995, one-quarter of the option shares on March 3, 1996, and one- quarter of the option shares on March 3, 1997. (9) Such options first become exercisable as to one-half of the option shares on February 16, 1995, one-quarter of the option shares on February 16, 1996, and one-quarter of the option shares on February 16, 1997. Aggregated Option/LSAR Exercises in Last Fiscal Year and Fiscal Year-End Option/LSAR Values None of the executive officers named in the Summary Compensation Table exercised any options during the fiscal year ended December 31, 1993. The following table sets forth 61 information with respect to the unexercised options and LSARs held by each of those executive officers as of the end of such fiscal year: Aggregated FY-End Option/LSAR Values
Number of Securities Underlying Unexercised Options/LSARs Value of Unexercised In-the-Money at FY-End (#) Options/LSARs at FY End ($) Name Exercisable Unexercisable Exercisable Unexercisable David P. Holveck 212,500(1) 211,500(1) $380,300 $832,950 Stephen D. Hayter -- 70,000(1) -- $357,500 Bobba Venkatadri 19,000 111,000(2) $ 26,125 $291,375 Martin R. Page 87,000 46,200(3) $197,125 $193,875 James N. Woody 79,000(1) 171,000(1) $ 26,125 $538,875
(1) All of such options were granted in tandem with LSARs. (2) 60,000 of such options were granted in tandem with LSARs. (3) 40,000 of such options were granted in tandem with LSARs. BOARD OF DIRECTORS - ------------------ COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors maintains a standing Compensation Committee, currently consisting of Dr. Evnin, Dr. Hamilton, and Dr. Knoppers. The Compensation Committee is responsible for reviewing matters pertaining to the compensation of the executive officers of the Company. No member of the Compensation Committee is, or was at any time, a member of the Company's management. During the fiscal year ended December 31, 1993, no executive officer of the Company served on the Compensation Committee (or other board committee performing equivalent functions) of any other entity, one of whose executive officers is a member of the Company's Board of Directors or Compensation Committee. COMPENSATION OF DIRECTORS Each director who was not an employee of the Company was compensated in the amount of $2,000 for each of five Board of Directors' meetings attended at the Company's Malvern, Pennsylvania offices, $3,000 for one Board of Directors' meeting attended at the Company's facility in Leiden, The Netherlands, and $1,000 for three telephonic Board of Directors' meetings attended during 1993. Each director who was not an employee of the Company was also granted options to purchase 15,000 shares of the Company's Common Stock during 1993. 62 In addition, upon joining the Board of Directors in 1993, Ms. Tempel was granted additional options to purchase 1,250 shares of the Company's Common Stock. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - ------------------------------------------------------------- MANAGEMENT ---------- The following table sets forth, as of March 1, 1994, information as to the number of shares of the Company's Common Stock owned by each director, each executive officer named in the Summary Compensation Table in this Annual Report, and all directors and executive officers as a group.
Shares of Common Stock Beneficially Owned as of March 1, 1994 --------------------- Percent of Shares of Total if Common Greater Stock(1) than 1% ----------- ---------- Anthony B. Evnin 152,202 -- William F. Hamilton 100,974 -- Antonie T. Knoppers 71,832 -- Hubert J.P. Schoemaker 804,023 1.8% Lawrence Steinman 16,600 -- Jean C. Tempel 2,975 -- David P. Holveck 270,577 -- Stephen D. Hayter 5,800 -- Bobba Venkatadri 35,756 -- James N. Woody 84,933 -- Martin R. Page 103,051 -- All directors and current executive officers as a group 1,648,723 3.7%
63 (1) Includes shares with respect to which such persons have the right to acquire beneficial ownership within 60 days of March 1, 1994. As indicated on a copy of Schedule 13G furnished to the Company under the Securities Exchange Act of 1934 (the "1934 Act") by Ardsley Advisory Partners ("Ardsley"), an investment advisor, 646 Steamboat Road, Greenwich, CT 06830, as of March 1, 1994 Ardsley shared dispositive and voting power with respect to 3,589,200 shares of the Company's Common Stock, or 8.2% of such shares outstanding at the time. Ardley shares the power to vote or direct the vote of such shares and the power to dispose or direct the disposition of such shares with various of its clients for whom the share were purchased. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- TRANSACTIONS INVOLVING MANAGEMENT At various times in 1993, various executive officers were awarded or vested in shares awarded pursuant to the 1983 Award Plan and were granted options pursuant to the 1987 Option Plan. The Company has arrangements with all executive officers other than Mr. Holveck pursuant to which each will receive severance payments of twelve months compensation in certain cases in the event of termination of his or her employment by the Company. The Company has an arrangement with Mr. Holveck pursuant to which he will receive a lump-sum payment of twelve months compensation in certain cases in the event of termination of his employment by the Company. The terms of options unexercisable as of March 1, 1994, for an aggregate of 1,617,835 shares and restricted common stock awards unvested as of March 1, 1994 for an aggregate of 235,985 shares granted to all executive officers and certain other employees of the Company provide for the acceleration of the exercisability of such options and the vesting of such common stock awards upon the occurrence of certain events constituting a change in control of the Company. In 1993, the Company made a research grant of approximately $37,500 to Dr. Steinman's laboratory at Stanford University to support research of Dr. Steinman and others. Dr. Steinman also provides consulting services to the Company under a consulting agreement. The Company pays Dr. Steinman $60,000 per year for services rendered under such agreement. In 1993, the Company loaned Mr. Hayter $115,000 to cover certain expenses he incurred in relocating to join the Company. Mr. Hayter fully repaid such loan in 1993. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS - -------------------------------------------------------------- ON FORM 8-K ----------- (a) Documents filed as part of the Report: (1) (i) Financial Statements of Centocor Partners III, L.P.: Balance Sheets, December 31, 1993 and 1992. 64 Statements of Operations for the Years Ended December 31, 1993, 1992 and 1991. Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991. Statements of Partners' Capital for the Years Ended December 31, 1993, 1992 and 1991. Notes to Financial Statements. Independent Auditors' Report. (2) Financial Statement Schedules: Schedule I - Marketable Securities - Other Investments. Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees other than Related Parties. Schedule V - Property, Plant and Equipment. Schedule VI - Accumulated Depreciation, Depletion, and Amortization of Property, Plant and Equipment Schedule VIII - Valuation and Qualifying Accounts Schedule IX - Short-Term Borrowings Schedule X - Supplementary Income Statement Information. Schedules, other than those listed above, have been omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements or the notes thereto. (3) Exhibits: 3.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form S-1 Registration Statement, File No. 2- 80098). 3.2 Statement of Reduction of Authorized Shares filed September 19, 1983 (incorporated by reference to Exhibit 3.2 to Registrant's 65 Annual Report on Form 10-K for the year ended December 31, 1986). 3.3 Statement of Reduction of Authorized Shares filed January 19, 1984 (incorporated by reference to Exhibit 3.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 3.4 Articles of Amendment filed April 18, 1984 (incorporated by reference to Exhibit 3.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 3.5 Statement of Reduction of Authorized Shares filed February 25, 1985 (incorporated by reference to Exhibit 3.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 3.6 Statement of Reduction of Authorized Shares filed May 6, 1985 (incorporated by reference to Exhibit 3.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 3.7 Statement of Reduction of Authorized Shares filed October 23, 1985 (incorporated by reference to Exhibit 3.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 3.8 Articles of Amendment filed April 16, 1987 (incorporated by reference to Exhibit 3.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 3.9 Articles of Amendment filed April 21, 1988 (incorporated by reference to Exhibit 3.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 3.10 Articles of Amendment filed April 26, 1988 (incorporated by reference to Exhibit 3.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 3.11 Statement Re Series A Preferred Stock filed October 11, 1988 (incorporated by reference to Exhibit 3.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 66 3.12 Articles of Amendment filed April 13, 1990 (incorporated by reference to Exhibit 3.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 3.13 Articles of Amendment filed April 26, 1991 (incorporated by reference to Exhibit 3.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 3.14 Statement of Correction filed October 16, 1991 to Articles of Amendment filed April 26, 1991 (incorporated by reference to Exhibit 3.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991). 3.15 By-Laws of Registrant, as amended October 30, 1992 (incorporated by reference to Exhibit 3.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 4.1 Specimen Certificate for Common Stock (incorporated by reference to Exhibit 4 to Amendment No. 1 to Form S-1 Registration Statement, File No. 2-80098). 4.2 Form of Warrant Issued to Purchasers of Limited Partnership Interests in CPIII (incorporated by reference to Exhibit 4.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 4.3 Rights Agreement between Centocor, Inc. and the First National Bank of Boston as Rights Agent dated September 26, 1988 (incorporated by reference to Exhibit 4 to Registrant's Current Report on Form 8-K dated September 26, 1988). 4.4 Form of Warrant Issued to Purchasers of Units, each Unit consisting of one share of Tocor Callable Common Stock and one warrant to purchase one share of Centocor Common Stock 67 (incorporated by reference to Exhibit 4.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 4.5 Form of Indenture between Centocor, Inc. and CoreStates Bank, N.A. as Trustee Dated as of January 18, 1991 (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to Form S-3 Registration Statement, Reg. No. 33-38110). 4.6 Form of Note Issued to Purchasers of 7 1/4% Convertible Subordinated Notes Due February 1, 2001 (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Form S-3 Registration Statement, Reg. No. 33-38110). 4.7 Form of Indenture between Centocor, Inc. and Chase Manhattan Trustees Limited as Trustee Dated as of October 16, 1991 (incorporated by reference to Exhibit 4.3 to Form S-3 Registration Statement, Reg. No. 33-44231). 4.8 Form of Debenture Issued to Purchasers of 6-3/4% Convertible Subordinated Debentures Due October 16, 2001 (included in Exhibit 4.9) (incorporated by reference to Exhibit 4.3 to Form S-3 Registration Statement, Reg. No. 33-44231). 4.9 Form of Series T Warrant Issued to Purchasers of Units, each Unit consisting of one share of Tocor II Callable Common Stock, one Series T warrant to purchase one share of Centocor Common Stock, and one Callable warrant to purchase one share of Centocor Common Stock (incorporated by reference to Exhibit 4.2 to Amendment No. 4 to Form S-1/S-3 Registration Statement of Tocor II and Centocor, Reg. No. 33-44072). 4.10 Form of Callable Warrant Issued to Purchasers of Units, each Unit consisting of one share of Tocor II Callable Common Stock, one Series T warrant to purchase one share of Centocor Common Stock, and one Callable warrant to purchase one share of Centocor Common Stock (incorporated by reference to Exhibit 4.3 to Amendment No. 4 to Form S-1/S-3 Registration Statement of Tocor II and Centocor, Reg. No. 33-44072). 10.1* Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.01 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 68 10.2* Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 10.03 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 10.3* 1983 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 10.04 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 10.4* 1983 Restricted Common Stock Award Plan, as amended and restated. 10.5* 1987 Non-Qualified Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.05 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990). 10.6* 1989 Non-Employee Directors' Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.06 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.7 Lease Agreement for property located at Great Valley Parkway, Malvern, PA 19355 (incorporated by reference to Exhibit 10.07 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.8 Partnership Purchase Option Agreement among Centocor, Inc., CCIP, Centocor Development Corporation I, each Class A limited partner and the Class B limited partner, dated September 12, 1985 (incorporated by reference to Exhibit 10.53 to Registrant's Post Effective Amendment No. 1 to Form S-1 Registration Statement, File No. 2-95057). 10.9 Indemnity Agreement between Centocor, Inc. and CCIP, dated September 12, 1985 (incorporated by reference to Exhibit 10.71 to Registrant's Post Effective Amendment No. 1 to Form S-1 Registration Statement, File No. 2-95057). 10.10 Qualified Savings and Retirement Plan, as amended and restated (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989). 10.11 Partnership Purchase Option Agreement among Centocor, Inc., CPII, Centocor Development Corporation II, each Class A limited 69 partner and the Class B limited partner, dated December 17, 1986 (incorporated by reference to Exhibit 10.23 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986) 10.12 Indemnity Agreement between Centocor, Inc. and CPII, dated December 17, 1986 (incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1986). 10.13 Consent Decree of Permanent Injunction in U.S. v. Centocor, Inc. et al., Civil Action No. 85-5613, in the United States District Court for the Eastern District of Pennsylvania (incorporated by reference to Exhibit 10.60 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985). 10.14 CPIII Agreement of Limited Partnership, dated December 23, 1987 as amended and restated on January 15, 1988 and March 23, 1988 (incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.15 Cross License Agreement between CPIII and Centocor, Inc., dated December 23, 1987 (incorporated by reference to Exhibit 10.38 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 10.16 Amendment dated March 23, 1988 to Cross License Agreement between CPIII and Centocor, Inc. dated December 23, 1987 (incorporated by reference to Exhibit 10.28 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.17 Development Agreement between CPIII and Centocor, Inc., dated December 23, 1987 (incorporated by reference to Exhibit 10.39 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 10.18 Amendment dated March 23, 1988 to Development Agreement between CPIII and Centocor, Inc. dated December 23, 1987 (incorporated by reference to Exhibit 10.30 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.19 Joint Venture Agreement between CPIII and Centocor, Inc., dated December 23, 1987 (incorporated by reference to Exhibit 10.40 to 70 Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 10.20 Amendment dated March 23, 1988 to Joint Venture Agreement between CPIII and Centocor, Inc. dated December 23, 1987 (incorporated by reference to Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.21 Indemnity Agreement between CPIII and Centocor, Inc., dated December 23, 1987 (incorporated by reference to Exhibit 10.41 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 10.22 Inducement Agreement among Centocor, Inc., CPIII, Centocor Development Corporation III, PaineWebber Development Corporation, PaineWebber, Inc. and PaineWebber R&D Partners II, L.P., dated December 23, 1987 (incorporated by reference to Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 10.23 Amendment dated March 23, 1988 to Inducement Agreement among Centocor, Inc., CPIII, Centocor Development Corporation III, PaineWebber Development Corporation, PaineWebber, Inc. and PaineWebber R&D Partners II, L.P. dated December 23, 1987 (incorporated by reference to Exhibit 10.35 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.24 Partnership Purchase Option Agreement among Centocor, Inc., CPIII, Centocor Development Corporation III, and the Class C limited partner, dated December 23, 1987 (incorporated by reference to Exhibit 10.43 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987). 10.25 Amendment dated March 23, 1988 to Partnership Purchase Option Agreement among Centocor, Inc., CPIII, Centocor Development Corporation III and the Class C limited partner dated December 23, 1987 (incorporated by reference to Exhibit 10.37 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988). 10.26 Technology License Agreement between Centocor, Inc. and Tocor II, Inc. dated January 21, 1992 (incorporated by reference to Exhibit 10.1 to Amendment No. 2 to Form S-1/S-3 Registration Statement of Tocor II and Centocor, Reg. No. 33-44072). 71 10.27 Research and Development Agreement between Centocor, Inc. and Tocor II, Inc., dated January 21, 1992 (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to Form S-1/S-3 Registration Statement of Tocor II and Centocor, Reg. No. 33- 44072). 10.28 Purchase Option Agreement by and among Centocor, Inc., PaineWebber Incorporated, The First Boston Corporation, Hambrecht & Quist Incorporated and J. P. Morgan Securities Inc. dated January 21, 1992 (incorporated by reference to Exhibit 10.3 to Amendment No. 5 to Form S-1/S-3 Registration Statement of Tocor II and Centocor, Reg. No. 33-44072). 10.29 Services Agreement between Centocor B.V. and Tocor II, Inc. dated January 21, 1992 (incorporated by reference to Exhibit 10.4 to Amendment No. 2 to Form S-1/S-3 Registration Statement of Tocor II and Centocor, Reg. No. 33-44072). 10.30 Administrative Agreement between Centocor, Inc. and Tocor II, Inc. dated January 21, 1992 (incorporated by reference to Exhibit 10.5 to Form S-1/S-3 Registration Statement of Tocor II and Centocor, Reg. No. 33-44072). 10.31 Series E, F and G Preferred Stock Purchase Agreement dated as of November 20, 1991 between Centocor Delaware, Inc. and Corvas International, Inc. (incorporated by reference to Exhibit 10.28 to Form S-1 Registration Statement of Corvas International, Inc. Reg. No. 33-44555). 10.32 Sales and Distribution Agreement between Centocor, Inc. and Eli Lilly and Company dated July 15, 1992. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) (incorporated by reference to Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.33 Reimbursement Agreement between Centocor, Inc. and Eli Lilly and Company dated July 15, 1992. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) (incorporated by reference to Exhibit 10.33 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 10.34 Investment Agreement between Centocor, Inc. and Eli Lilly and Company dated July 15, 1992. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) (incorporated by reference to Exhibit 10.34 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1992). 72 10.35 Amendment to Sales and Distribution Agreement among Centocor, Inc., Centocor B.V. and Eli Lilly and Company dated June 27, 1993. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) 10.36 Option Agreement between Centocor B.V. and Eli Lilly Nederland B.V. dated August 20, 1993. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) 10.37 Deed of Mortgage from Centocor B.V. to Eli Lilly Nederland B.V. dated August 26, 1993. 10.38 Deed of Pledge from Centocor B.V. to Eli Lilly Nederland B.V. dated August 26, 1993. 10.39 Stock Purchase Agreement made as of December 16, 1993 by and between the Registrant and The Wellcome Foundation Limited (incorporated by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated December 16, 1993). 10.40 Supply, Distribution and Sales Agreement dated December 16, 1993 by and among the Registrant, Centocor B.V., The Wellcome Foundation Limited and Burroughs Wellcome Co. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) (incorporated by reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-K dated December 16, 1993). 10.41 Clinical and Regulatory Development Agreement dated December 16, 1993 among the Registrant, Centocor B.V., The Wellcome Foundation Limited and Burroughs Wellcome Co. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) (incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated December 16, 1993). 10.42 Manufacturing Technology Option Agreement dated as of December 16, 1993 among the Registrant, Centocor B.V., The Wellcome Foundation Limited and Burroughs Wellcome Co. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) 73 (incorporated by reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated December 16, 1993). 10.43 Centocor Technology License Agreement dated as of December 16, 1993 among the Registrant, Centocor B.V., The Wellcome Foundation Limited and Burroughs Wellcome Co. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) (incorporated by reference to Exhibit 10(e) to the Registrant's Current Report on Form 8-K dated December 16, 1993). 10.44 Relicense Agreement dated as of December 16, 1993 among the Registrant, Centocor B.V., The Wellcome Foundation Limited and Burroughs Wellcome Co. (incorporated by reference to Exhibit 10(f) to the Registrant's Current Report on Form 8-K dated December 16, 1993). 10.45 Appendix A - Glossary of Terms to each of the Agreements dated as of December 16, 1993 by and between the Registrant, Centocor B.V., The Wellcome Foundation Limited and Burroughs Wellcome Co. (The Registrant has requested confidential treatment from the Securities and Exchange Commission for portions of this Agreement.) (incorporated by reference to Exhibit 10(g) to the Registrant's Current Report on Form 8-K dated December 16, 1993). 12 Statement re Computation of Ratios. 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. *These exhibits constitute compensatory plans. (b) The Registrant has filed the following reports on Form 8-K since the beginning of the quarter ended December 31, 1993: Date of Report Item Covered -------------- ------------ December 16, 1993 5,7 December 23, 1993 5,7 March 11, 1994 2,7 74 For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8, Nos. 2-86486, 33-16285, 33-00167, 33-35731, 33-23480, 33-16284, and 33-35730. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 75 Centocor Partners III, L.P. Balance Sheets
December 31, December 31, 1993 1992 ---- ---- Assets Investment in joint venture (Note 5) $ 507,140 $ 503,765 =========== =========== Liabilities and partners' capital Current liabilities: Accounts payable and accrued expenses $ 37,907 $ 36,907 Due to Centocor, Inc. (Note 6) 4,134,126 6,595,790 ----------- ----------- 4,172,033 6,632,697 Partners' capital (Note 4) (3,664,893) (6,128,932) ----------- ----------- Total liabilities and partners' capital $ 507,140 $ 503,765 =========== ===========
See accompanying Notes to Financial Statements. 76 Centocor Partners III, L.P. Statements of Operations
For the Years Ended December 31, 1993 1992 1991 ---- ---- ---- Revenues: Interest income $ - $ - $ 18,915 Equity in earnings of joint venture (Note 5) 3,375 128,571 68 ------------ ------------ ------------ 3,375 128,571 18,983 Costs and Expenses: Research and development (Note 6) 19,875,000 28,366,000 17,716,000 Interest - - 547,665 Amortization - 115,705 220,716 General and administrative 7,336 6,090 49,769 ------------ ------------ ------------ 19,882,336 28,487,795 18,534,150 ------------ ------------ ------------ Loss $(19,878,961) $(28,359,224) $(18,515,167) ============ ============ ============
See accompanying Notes to Financial Statements. 77 Centocor Partners III, L.P. Statements of Partners' Capital
Limited General Partners Partner Total ----------- ------------ ------------ Balance, December 31, 1990 $1,480,774 $ (989,773) $ 491,001 Contributions - 16,232,000 16,232,000 Distributions (71,942) (727) (72,669) Loss (791,175) (17,723,992) (18,515,167) ---------- ------------ ------------ Balance, December 31, 1991 617,657 (2,482,492) (1,864,835) Contributions - 24,246,634 24,246,634 Distributions (149,992) (1,515) (151,507) Earnings (Loss) 6,708 (28,365,932) (28,359,224) ---------- ------------ ------------ Balance, December 31, 1992 474,373 (6,603,305) (6,128,932) Contributions - 22,343,000 22,343,000 Loss (3,921) (19,875,040) (19,878,961) ---------- ------------ ------------ Balance, December 31, 1993 $ 470,452 $ (4,135,345) $ (3,664,893) ========== ============ ============
See accompanying Notes to Financial Statements. 78 Centocor Partners III, L.P. Statements of Cash Flows
For the Years Ended December 31, 1993 1992 1991 ---- ---- ---- Cash flows used for operating activities: Loss $(19,878,961) $(28,359,224) $(18,515,167) Amortization - 115,705 220,716 Change in interest receivable - - 7,591 Change in due to Centocor, Inc. (2,461,664) 4,050,042 (3,514,875) Change in accounts payable and accrued expenses 1,000 (65,184) 26,347 Equity in earnings of joint venture (3,375) (3,304) (68) ------------ ------------ ------------ Net cash used for operating activities (22,343,000) (24,261,965) (21,775,456) Cash flows from investing activities: Maturities of short-term investments - - 390,000 ------------ ------------ ------------ Net cash from investing activities - - 390,000 Cash flows from financing activities: Collections on notes receivable from partners - - 13,226,772 General partner capital contributions 22,343,000 24,246,634 16,232,000 Distributions to partners - (151,507) (72,669) Repayment of note payable to joint venture - - (500,000) Repayment of long-term debt - - ( 7,388,889) ------------ ------------ ------------ Net cash from financing activities 22,343,000 24,095,127 21,497,214 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents - (166,838) 111,758 Cash and cash equivalents at beginning of year - 166,838 55,080 ------------ ------------ ------------ Cash and cash equivalents at end of year $ - $ - $ 166,838 ============ ============ ============
See accompanying Notes to Financial Statements. 79 Centocor Partners III, L.P. Notes to Financial Statements - ----------------------------- 1. Organization and Business Operations ------------------------------------ Centocor Partners III, L.P. (the "Partnership"), was formed in December 1987, and is managed by its general partner, Centocor Development Corporation III, a wholly owned subsidiary of Centocor, Inc. ("Centocor"), a Pennsylvania corporation, which is subject to the reporting requirements of the Securities and Exchange Act of 1934. The Partnership was organized to develop and derive income from the sale of one therapeutic product (CentoRx) and one imaging product (Capiscint) which are expected to be used in the treatment and diagnosis, respectively, of two different types of cardiovascular disease. In 1987 and 1988, the Partnership and Centocor sold (a) 542.25 units, consisting of 111 Class C limited partnership interests and 431.25 Class A limited partnership interests each together with warrants to purchase shares of Centocor common stock, and (b) one Class B limited partnership interest together with warrants to purchase shares of Centocor common stock. The purchase prices were $90,000 for the Class C interests, $100,000 for the Class A interests and $150,000 for the Class B interest. The net proceeds from the sale of limited partnership interests were used primarily to pay expenses incurred under the Partnership's agreement with Centocor (the "Development Agreement") to perform research and development for the Partnership (see Note 6). The Partnership also entered into a Cross License Agreement pursuant to which Centocor granted to the Partnership an exclusive license to use all patent rights, know-how, technical information and biological materials owned or controlled by Centocor within the Partnership's field of activity. Under the Cross License Agreement, the Partnership agreed to grant to Centocor an exclusive royalty-free license to all patent rights, know-how, technical information and biological materials arising from research and development conducted under the Development Agreement for all purposes outside of the Partnership's field of activity. The profits and losses of the Partnership are generally allocated 1 percent to the general partner and 99 percent to the limited partners. Research and development costs in excess of the limited partners' capital contributions are allocated to the general partner. The general partner is permitted but not required to make additional capital contributions for the working capital of the partnership (see Note 6). 80 2. Summary of Significant Accounting Policies ------------------------------------------ Investment in Joint Venture --------------------------- The Partnership accounts for its investment in the joint venture (see Note 5) under the equity method of accounting. Income Taxes ------------ Income or loss credited to the partners' capital accounts is reportable for income tax purposes by the partners; therefore, no provision for income taxes has been made in the accompanying financial statements. The Partnership's tax returns are subject to examination by federal and state taxing authorities. Because many types of transactions are susceptible to varying interpretations under federal and state income tax laws and regulations, certain amounts may be subject to change at a later date upon final determination by the respective taxing authorities. 3. Bank Debt --------- In 1987, the Partnership borrowed $9,500,000 to fund certain syndication and organization costs and to make a working capital contribution to the joint venture. The outstanding balance of the loan was repaid on September 30, 1991. Interest paid in 1991 was $547,665. 4. Partnership Purchase Option --------------------------- Centocor has entered into a Partnership Purchase Option Agreement with each of the limited partners. Under its terms, Centocor has the option to purchase each limited partnership interest upon the earlier of (a) the limited partners having received distributions from the joint venture (see Note 5) equal to 15 percent of their capital contributions to the Partnership and the expiration of at least 24 months after the first commercial sale of products by the joint venture or (b) the expiration of at least 48 months after the first commercial sale of products by the joint venture; but, in any event, not prior to the expiration of the then applicable long-term capital gains holding period after the expenditure by Centocor of all funds paid to it pursuant to the Development Agreement. There have not been any sales of the Partnership's products. The ability of Centocor to exercise this option is highly dependent upon the future financial condition of Centocor. If Centocor exercises the Partnership Purchase Option, each limited partner will enter into a Partnership Purchase Agreement with Centocor which sets forth the terms by which Centocor will purchase the limited partnership interests. Under the terms of the Partnership Purchase Agreement, the aggregate purchase price for the limited partnership interests would be payable as follows: (a) an advance payment of $13,598,000 in cash (or, at Centocor's option, $15,229,000 in Centocor common stock), and (b) quarterly payments equal to certain 81 percentages of revenue to Centocor from sales of the Partnership's products, or products of Centocor or its affiliates which are competitive, or sold in combination, with the Partnership's products. Beginning with the 12th calendar quarter after the calendar quarter in which the advance payment is made, Centocor's payment to the limited partners will be reduced by 25 percent of the amount which the limited partners would otherwise have received until Centocor has recouped the amount of the advance payment. 5. Joint Venture ------------- The Partnership and Centocor have formed a joint venture for the purpose of commercializing any products developed within the Partnership's field of activity. The joint venture agreement provides that Centocor shall manufacture the products on behalf of the joint venture for its actual costs of manufacturing. Under the joint venture agreement, Centocor also provides marketing services for the joint venture for a commission of 17 percent of joint venture sales and receives 10 percent of joint venture sales as reimbursement for its management and administrative services. The profits and losses of the joint venture are to be allocated 75 percent to Centocor and 25 percent to the Partnership. The joint venture will terminate upon the occurrence of certain events, principally related to the exercise or expiration of the purchase option granted to Centocor (see Note 4). On July 15, 1992, Centocor and Eli Lilly and Company ("Lilly") entered into a Sales and Distribution Agreement, pursuant to which, Lilly has the option to be the exclusive distributor for CentoRx world-wide. Pursuant to the Agreement, the Joint Venture recognized $500,000 of revenue in 1992 related to the CentoRx option. During the second quarter of 1993, Lilly exercised its option to become the exclusive worldwide distributor for CentoRx and Centocor and Lilly amended their Sales and Distribution Agreement. As part of the amendment, Lilly assisted Centocor and will continue to assist Centocor in the regulatory filings and continue development of CentoRx for various clinical indications. Status of CentoRx ------------------ CentoRx is a product intended to treat or prevent the formation of blood clots in the cardiovascular system. In the first quarter of 1993, Centocor completed a randomized, double-blinded, placebo-controlled Phase III trial in high-risk coronary angioplasty patients that enrolled 2,099 patients at 56 medical centers. Centocor filed product license applications for CentoRx in the United States and Canada in 1993 and has filed product license applications in several countries in Europe in 1994. There can be no assurance that CentoRx will be approved for commercial sale in the United States, Europe or elsewhere. 6. Research Funding ---------------- The initial funding by the limited partners for the Partnership's research program pursuant to the Development Agreement with Centocor was exhausted in 1990. In order to 82 continue the research program, the Partnership extended the terms of the Development Agreement with Centocor. Approximately $64,166,000 of the Partnership's research costs through December 31, 1993 were funded by the general partner. At December 31, 1993 and December 31, 1992, approximately $4,134,000 and $6,596,000, respectively, was due to Centocor for expenditures under the Development Agreement. The general partner may continue to provide funding but is under no obligation to do so. The ability of the general partner to continue to fund, and the ability of Centocor to perform under, the Development Agreement is highly dependent upon the future financial condition of Centocor. 83 INDEPENDENT AUDITORS' REPORT The Partners of Centocor Partners III, L.P.: We have audited the accompanying balance sheets of Centocor Partners III, L.P. as of December 31, 1993 and 1992, and the related statements of operations, partners' capital and cash flows for each of the years in the three-year period ended December 31, 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Centocor Partners III, L.P. at December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. Continuation of the product research programs by the Partnership is dependent upon the general partner continuing to provide funding and/or the ability of the Partnership to obtain funding from another source. See Note 6 to the financial statements. KPMG Peat Marwick Philadelphia, Pennsylvania March 11, 1994 84 SCHEDULE I CENTOCOR, INC. AND SUBSIDIARIES MARKETABLE SECURITIES - OTHER INVESTMENTS DECEMBER 31, 1993 (IN THOUSANDS)
Number of Shares Or Amount Principal Market Carried on DESCRIPTION Amount Value Cost Balance Sheet --------- ------ ---- ------------- Short-term investments U.S. Government obligations $62,490 $61,787 $61,795 $61,795 Corporate obligations $ 7,000 $ 7,105 $ 7,113 $ 7,113 Commercial paper $ 5,000 $ 4,947 $ 4,954 $ 4,954 Other short-term investments 5,882 $ 2,900 $ 2,800 $ 2,800 ------- ------- ------- ------- $76,739 $76,662 $76,662 ======= ======= ======= Long-term investments U.S. Government obligations $ 8,700 $ 8,726 $ 8,726 $ 8,726 Equity investments (1): Corvas International Inc. common stock (2) 1,269 $ 5,712 $ 6,347 $ 5,712 Other equity investments 4,000 $ 2,718 $ 2,718 $ 2,718 ------- ------- ------- ------- $17,156 $17,791 $17,156 ======= ======= =======
(1) With respect to securities with no quoted market prices on December 31, 1993 market value is based on the determination of fair value made in good faith by management. (2) At December 31,1993, the Company recorded an unrealized loss of $2,380,000 due to the decline in market value of these securities. 85 SCHEDULE II CENTOCOR, INC. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS)
Centocor Cardiovascular Imaging Centocor Centocor Stephen D. Partners, L.P. Partners II, L.P. Partners III, L.P. Tocor, Inc. Hayter (2) Balance, December 31, 1990 $ 7 ($81) $5,531 $4,847 $- Additions - 879 2,061 5,879 Collections (7) (798) (7,592) (8,406) Other (2,320)(1) ---- ----- ------- ------ ----- Balance, December 31, 1991 - - - - - Additions Collections Other ---- ----- ------- ------ ----- Balance, December 31, 1992 - - - - - Additions $ 115 Collections (115) Other ---- ----- ------- ------- ----- Balance, December 31, 1993 - - - - - ==== ===== ======= ======= =====
(1) In June 1991, the Company exercised its option to acquire all the callable common stock of Tocor, Inc., which thereafter became a consolidated subsidiary. (2) Stephen D. Hayter is an executive vice president of the Company. The amounts loaned by the Company were done so in connection with his relocation and employment by the Company. 86 SCHEDULE V CENTOCOR, INC. AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS)
Balance Additions Foreign Balance Additions Foreign at at Retire- Currency at at Retire- Currency Classification 12/31/90 Cost (2) ments Effect Other(1) 12/31/91 Cost(3) ments Effect Other(1) - -------------- -------- --------- ------- -------- -------- -------- --------- ------- -------- -------- Land and buildings $45,354 $ 5,039 $ - ($298) $ 7,790 $ 57,885 $11,835 ($ 511) ($1,561) $ 9,778 Equipment, furniture, fixtures, and improvements 58,920 12,465 - 321 11,439 83,145 11,319 (2,971) (2,180) 3,291 Construction in progress 18,985 14,952 (1,328) (389) (19,229) 12,991 155 - (77) (13,069) -------- ------- ------- ----- ------- -------- ------- -------- ------- -------- $123,259 $32,456 ($1,328) ($366) $ - $154,021 $23,309 ($3,482) ($3,818) $ - ======== ======= ======= ===== ======= ======== ======= ======= ======= ======== Balance Additions Foreign Balance at at Retire- Currency at 12/31/92 Cost(3) ments(4) Effect 12/31/93 -------- --------- --------- -------- -------- Land and buildings $ 77,426 $ 806 ($13,300) ($ 648) $ 64,284 Equipment, furniture, fixtures, and improvements 92,604 1,202 (11,746) (3,128) 78,932 Construction in progress - - - - - -------- ------ -------- ------- -------- $170,030 $2,008 ($25,046) ($3,776) $143,216 ======== ====== ======== ======= ========
(1) Amounts relate to the transfer of cost of completed assets to active assets. (2) Land and building acquisitions include $4,268,000 related to the purchase of the Company's St. Louis manufacturing facility. Construction in progress and equipment, furniture, fixtures and improvements include additions to the Company's manufacturing and office facilities in Malvern, St. Louis and Leiden locations. (3) Land and building acquisitions include $11,151,000 related to manufacturing and administrative facilities at the Company's Leiden and St. Louis locations, including $2,134,000 acquired by assuming the related debt obligation. Equipment, furniture, fixtures and improvements include $904,000 of assets added by the acquisition of Mercia Diagnostics, Ltd. in January, 1992. (4) Retirements include the sale of the Company's St. Louis facility in 1993 for approximately $12,000,000 in addition to write-down of fixed asset balances to previously established reserves, the sale of certain equipment, and the retirement of fully depreciated assets which in the aggregate total $13,500,000. 87 SCHEDULE VI CENTOCOR, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS)
Balance Depre- Foreign Balance Depre- Foreign Balance Depre- at ciation Retire- Currency at ciation Retire- Currency at ciation Classification 12/31/90 Expense ments Effect 12/31/91 Expense ments Effect 12/31/92 Expense - --------------- -------- ------- ----- -------- -------- ------- ----- ------- --------- ------- Buildings $ 4,257 $ 1,949 $ 0 $ 0 $ 6,206 $ 2,670 ($4) ($79) $ 8,793 $ 3,287 Equipment, furniture, fixtures, and improvements 20,033 10,455 (268) 296 30,516 14,029 (387) (1,111) 43,047 12,304 ------- ------- ----- ---- ------- ------- ----- ------- ------- ------- $24,290 $12,404 ($268) $296 $36,722 $16,699 ($391) ($1,190) $51,840 $15,591 ======= ======= ===== ==== ======= ======= ===== ======= ======= =======
Foreign Balance Retire- Currency at ments Effect 12/31/93 ------- ------- -------- Buildings ($1,484) ($505) ($10,091) Equipment, furniture, fixtures, and improvements (5,793) (1,116) 48,442 ------- ------- ------- ($7,277) ($1,621) $58,533 ======= ======= =======
88 SCHEDULE VIII CENTOCOR, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS)
Additions Additions Additions Balance Charged to Balance Charged to Balance Charged to Balance at Costs and at Costs and at Costs and at Classification 12/31/90 Expenses Deductions 12/31/91 Expenses Deductions 12/31/92 Expenses Deductions 12/31/93 - -------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ------- Inventory Reserves $3,758 $7,069 - $10,827 $68,144(1) ($10,665) $68,306 $3,500(1) ($7,063) $64,743 ======== ========== ========== ======== ========== ========= ======= ======== ========= =======
(1) The Company recorded reserves for HA-1A inventories of $3,500,000 and $64,877,000 in 1993 and 1992, due to the uncertainties regarding future HA-1A sales resulting from the current regulatory and commercial status of HA-1A. 89 SCHEDULE IX CENTOCOR, INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS FOR THE THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
Maximum Average Weighted Amount Amount Average Balance Weighted Outstanding Outstanding Interest Rate Category of aggregate at end of Average During the During the During the short-term borrowing Period interest rate Period Period (2) Period(3) - ------------------------------- --------- ------------- ----------- ------------ ---------------- Year ended December 31, 1991: Notes Payable to Bank (1) - - $13,100 $6,886 9.34% Year ended December 31, 1992: Notes Payable to Bank (1) $6,593 9.17% $7,595 $5,302 9.82% Year ended December 31, 1993: Notes Payable to Bank (1) $6,186 6.43% $6,667 $6,383 7.80%
(1) Notes Payable to Bank represent borrowings under lines of credit arrangements which are subject to annual review. (2) The average amount outstanding is a weighted average calculation based upon the amount of daily debt outstanding. (3) The weighted average interest rate was computed by dividing actual interest expense by the average short-term debt outstanding. 90 SCHEDULE X CENTOCOR, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS)
Year ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- Maintenance and Repairs $3,242 $ 5,161 $ 5,446 Advertising costs 1,563 14,385 19,121 Amortization of intangible assets and similar deferrals 6,094 5,591 3,089 Royalties (1) 3,836 4,964 3,603
(1) Included within cost of sales. 91 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTOCOR, INC. March 31, 1994 By:/s/David P. Holveck ---------------------- David P. Holveck (President and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/Hubert J.P. Schoemaker Director, Chairman of March 31, 1994 - ------------------------- the Board Hubert J. P. Schoemaker /s/ Dominic J. Caruso Vice President, March 31, 1994 - ------------------------- Corporate Controller Dominic J. Caruso and Chief Accounting Officer (Principal Accounting and Financial Officer) /s/Anthony B. Evnin Director March 31, 1994 - ------------------------- Anthony B. Evnin /s/William F. Hamilton Director March 31, 1994 - ------------------------- William F. Hamilton 92 /s/Antonie T. Knoppers Director March 31, 1994 - --------------------------- Antonie T. Knoppers /s/Lawrence Steinman Director March 31, 1994 - --------------------------- Lawrence Steinman /s/Jean C. Tempel Director March 31, 1994 - --------------------------- Jean C. Tempel 93 EX-10.35 2 AMENDMENT TO SALES AND DISTRIBUTION AGREEMENT THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT THE PLACES INDICATED BY DOUBLE ASTERISKS (**); AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. AMENDMENT TO SALES AND DISTRIBUTION AGREEMENT Centocor, Inc., a Pennsylvania corporation, Centocor B.V., a Netherlands corporation (collectively "Centocor"), and Eli Lilly and Company, an Indiana corporation ("Lilly"), hereby agree as of June 27, 1993 as follows: 1. Definitions. Centocor, Inc., and Lilly are parties to a "Sales and ----------- Distribution Agreement" made as of July 15, 1992 ("the Agreement"). Except to the extent modified by this Amendment, terms defined in the Agreement have the same meaning in this Amendment, and the Agreement remains in full force and effect. The provisions of the Agreement apply to this Amendment. 2. Exercise of option. Option II contained in section 13.2 of the Agreement ------------------ is validly exercised and the Agreement now applies to CentoRx as a Product. 3.(a). Centocor B.V. All references in the Agreement or this Amendment ------------- to "Centocor" shall include and refer to Centocor B.V., a Netherlands Corporation, and Centocor B.V. accepts and shall be bound by all the terms and conditions of the Agreement to the same extent as Centocor, Inc. Insolvency of, or filing of a petition with respect to, either Centocor, B.V. or Centocor, Inc. shall create the right of termination provided by Section 9.3 of the Agreement. (b). Security for performance by Centocor. As security for Centocor's ------------------------------------ performance under the Agreement and this Amendment and as security against the occurrence of a Trigger Event, Centocor, B.V. will enter into an option agreement with Eli Lilly Nederland, B.V., a Netherlands corporation, in the form attached as Exhibit D and shall grant to Eli Lilly Nederland, B.V. a right of mortgage in the form attached as Exhibit E on the manufacturing facility and all related licenses and intellectual property owned or licensed by Centocor, B.V. The parties agree that an actual or threatened interruption of supply caused by a Trigger Event would cause damage to Lilly in the amount of at least (**) United States dollars. (c). Additional documents. Concurrent with this Amendment, Centocor is -------------------- furnishing to Lilly an opinion of Netherlands counsel acceptable to Lilly that the option and mortgage right will be enforceable according to their terms under the law of the Netherlands upon completion of appropriate steps to record the mortgage in compliance with Netherlands law. Centocor represents and warrants that (1) all appropriate steps will be accomplished to render the mortgage enforceable according to its terms within 15 days after the date of this Amendment and (2) that each of the representations and warranties contained in this Agreement or in Exhibit D or in Exhibit E is true as of the date of this Amendment and as of the date on which all such steps have been completed, except as disclosed in the Agreement or in Exhibit F. Not later than 15 days after the date of this Amendment, Centocor shall furnish to Lilly an opinion of Netherlands counsel acceptable to Lilly that the option and mortgage right are enforceable according to their terms under the law of the Netherlands and that all such steps have been accomplished. 4. Funding. Lilly will pay to Centocor, Inc. to fund a portion of Centocor's ------- future research and development of CentoRx the amounts set forth below for each of the calendar quarters beginning with the 4th quarter of 1993, provided that as of the last date in the preceding calendar quarter (a) all of the milestones called for by that date according to the following schedule have been achieved and (b) Centocor is not in material breach of a covenant contained in the Agreement and (c) each of Centocor's warranties and representations contained in the Agreement or Exhibit D or Exhibit E is true and (d) neither party has terminated the payments. The payment for each quarter shall be on the later of (a) the last day of the preceding calendar quarter and (b) receipt by Lilly of a certificate executed no earlier than the ten days before the first day of the quarter from Centocor that the conditions contained in this paragraph for the payment for that quarter are met as of the date of the certificate.
Calendar Quarter Milestones to be achieved in that Amount to be - --------------- --------------------------------- ------------ Quarter funded for next ------- --------------- quarter ------- (**)
(**) 5. Failure to achieve milestones. In the event a Critical Milestone is not ----------------------------- achieved within 60 days after the end of the quarter required by the schedule set forth in paragraph 4, Lilly, after thirty days notice given at any time more than 30 days after the end of that quarter, may assume control of the research and development effort. If Lilly exercises that right, (a) Centocor shall cooperate with Lilly in the orderly completion of the research and development of CentoRx according to such plan as Lilly may adopt, revise or design from time to time, including assignment of such rights, licenses, applications, or other documents or interests as are reasonably necessary to that completion by Lilly and (b) expenses in devising or implementing that plan incurred by Lilly in any calendar quarter shall be treated for purposes of paragraph 8 of this Amendment as payments for research or development by Lilly on the 15th day of the second month of that quarter. -3- 6. Termination of funding. Centocor, Inc. or Lilly may terminate the ---------------------- development payments on thirty days notice to the other and thereafter (a) no further payments shall be made pursuant to paragraph 4 of this Amendment, and (b) all other provisions of the Agreement and this Amendment shall be unaffected. 7. Records. Centocor shall maintain complete records of all amounts paid by ------- Centocor related to the research and development activities contemplated by paragraph 4, and shall provide Lilly within thirty days after the end of each calendar year in which research or development activities were conducted with a report stating the dollar amount of funds supplied by Lilly expended on those activities, including a separate itemization for those activities conducted within the United States, with such detail as Lilly may reasonably request. 8. Development royalties. Development royalties shall be paid by Centocor --------------------- to Lilly for each calendar quarter at the rate of (**) of Net Sales of CentoRx during the quarter, provided that (a) no Development Royalties shall be owed on Net Sales below (**) in any calendar year and (b) at such time as the Maximum Aggregate Development Royalty as of that time has been paid, no further Development Royalties shall be owing. Within 45 days after the close of each calendar quarter until the Maximum Aggregate Development Royalty has been paid, each party shall provide the other with a statement of Net Sales by that party and all Affiliates of that party for that quarter. Development Royalties shall be paid within 90 days after the end of each calendar quarter to which the payment relates. The Maximum Aggregate Development Royalty, at any given time, shall be the sum of (a) each payment by Lilly for research or development pursuant to paragraph 4 or 5 of this Amendment, adjusted for time, plus (b) each payment by Lilly subsequent to the date of this Amendment to acquire rights to CentoRx, adjusted for time, minus (c) each Development Royalty payment by Centocor, adjusted for time. "Adjusted for time" as to any payment means compounded at an annual simple rate of (**) from the date the payment was made to the date as of which the adjustment is measured. -4- 9. Initial Centocor selling price. The initial Centocor Selling Price shall be ------------------------------ set by the Oversight Committee. IN WITNESS WHEREOF, and intending to be legally bound, Centocor and Lilly have caused this Amendment to be executed by their duly authorized representatives as of the date first written above. Eli Lilly and Company Centocor, Inc. Centocor B.V. by /s/ Sidney Taurel /s/ David Holveck /s/ Hubert Schoemaker -------------------- ------------------ ---------------------- -5- EX-10.36 3 OPTION AGREEMENT THE REGISTRANT HAS REQUESTED CONFIDENTIAL TREATMENT FOR CERTAIN PORTIONS OF THIS AGREEMENT. THOSE PORTIONS HAVE BEEN OMITTED FROM THIS COPY OF THE AGREEMENT AT THE PLACES INDICATED BY DOUBLE ASTERISKS (**); AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OPTION AGREEMENT ---------------- 1. CENTOCOR, B.V., a company incorporated under the laws of the Netherlands, with principal place of business in Leiden, the Netherlands, hereinafter referred to as "Centocor"; and 2. ELI LILLY NEDERLAND B.V., a company incorporated under the laws of the Netherlands, hereinafter referred to as "Lilly"; WHEREAS on 29 June 1993 Centocor, together with its parent company Centocor, Inc., has entered an agreement ("the Amendment") with Eli Lilly and Company (the ultimate parent company of Lilly), forming an amendment to a Sales and Distribution Agreement of 12 July 1992 ("the Agreement") between Centocor Inc. and Eli Lilly and Company; WHEREAS pursuant to paragraph 3 of the Amendment on 29 June 1993 Centocor and Lilly entered into an option agreement under which option agreement Centocor has granted to Lilly an option to purchase Centocor's research and manufacturing facilities situated at Einsteinweg 101 in Leiden ("the Facility") in the event of an occurrence of a trigger event as defined in the Agreement ("Trigger Event"); WHEREAS Centocor has further agreed in the Amendment and the option agreement mentioned before, to grant to Lilly a (second) right of mortgage on the Facility to secure Centocor's performance under the option agreement; WHEREAS the parties to the Amendment in the meantime have further agreed that Centocor shall grant to Lilly an option to purchase Centocor's equipment, inventory, tools and documentation required to continue the production of CentoRx as carried out in the Facility and that Centocor shall establish a right of pledge over such assets on behalf of Lilly to secure Centocor's performance of such option; WHEREAS Centocor and Lilly wish to amend the option agree- ment mentioned before and make some additions to such option agreement; NOW, THEREFORE, PARTIES HAVE AGREED AS FOLLOWS: - ---------------------------------------------- 1. On 29 June 1993 Centocor granted to Lilly an option right ("the Facility Option") to purchase the Facility in accordance with and subject to the terms and conditions set forth herein, which Facility Option was accepted by Lilly on that date. Centocor herewith grants to Lilly an option right ("the Production Assets Option") to purchase all of Centocor's equipment, inventory, tools, documentation and all other assets required at any time to continue the production of CentoRx carried out in the Facility by Centocor (the "Production Assets"). Within one week after the execution of this Option Agreement, Centocor shall prepare and submit to Lilly two original copies of a list describing the Production Assets as complete and accurate as possible which list shall be signed on behalf of Centocor. The Production Assets shall include but shall not be limited to the assets men- tioned on such lists. After the lists have been approved by Lilly and signed on behalf of Lilly, one copy thereof shall be attached to this Option Agree- ment as exhibit F. The Facility Option and the Produc- tion Assets Option are collectively hereafter referred -2- to as "the Option". The Facility Option and the Production Assets Option can only be exercised simul- taneously and as a whole. 2. The Option shall be dependent on the existence and validity of the Agreement and the Amendment and shall lapse upon the termination thereof, irrespective the reason therefore, except for termination pursuant to section 9.2 (a) or 9.3 of the Agreement. The Option shall also lapse in the event that Centocor, Inc. achieves shareholders' equity in excess of US$ (**) or on 3 June 1999, whichever shall first occur. 3. The Option can be exercised upon the occurrence of a Trigger Event by Lilly giving written notice to Centocor by registered letter within one month follo- wing such Trigger Event. The occurrence of a Trigger Event shall be established in accordance with the relevant provisions of the Agreement. 4. The price for which Lilly can buy and acquire the facility and the Production assets pursuant to the Option shall be the fair market value of the Facility and the Production Assets at the time the Option is exercised, to be appraised by three reputable indepen- dent expert appraisers. Centocor and Lilly shall each appoint an appraiser within 14 days following Lilly's notice of exercise of the Option, and the third appraiser shall be appointed by the two appointed appraisers jointly within two weeks following their appointment. The appraisers shall jointly determine the fair market value of the Facility and the Production Assets and issue their report to both Centocor and Lilly within one month following the appointment of the third -3- appraiser (and his acceptance of such appointment). In the event that the appraisers shall fail to reach agreement of the fair market value of the Facility and/or the Production Assets within the aforesaid time period, the appraiser appointed by the two appointed appraisers jointly, shall determine the fair market value thereof, which determination shall be binding on the parties hereto. 5. The sale and transfer of legal title of the leasehold ownership to the Facility to Lilly shall be provided for in a notarial deed, to be executed within two weeks after determination of the price, mentioned in paragraph 4 hereof. The notarial deed shall contain all terms and conditions including representations and warranties as are customary in the Netherlands for the type of property such as the Facility and such deed shall be prepared and executed before civil law notary Mr. P.A.W. van Buren in Amsterdam, or such other notary as Lilly shall choose at that time. Title of leasehold ownership to the property shall pass to Lilly free and clear of any mortgage, atta- chment, judicial arrest or other encumbrances, except for such easements, covenants and obligations as shall appear from the Land Register ("Kadaster") and/or resulting from the deed by which Centocor acquired the leasehold ownership. The sale and transfer of the Production Assets shall take place immediately after the execution of the notarial deed of transfer of the Facility. Such sale and transfer shall be recorded in a private deed, which shall contain all terms and conditions including representations and warranties as are customary in the Netherlands for the type of assets such as the Produc- tion Assets. Such deed shall be drafted by a lawyer to -4- be designated by Lilly. The Production Assets shall be transferred to Lilly free and clear of any attachment, judicial arrest or other encumbrances. All costs and expenses connected to the transfer of the Facility and the Production Assets to Lilly shall be for Lilly's account. 6. Lilly shall pay to the civil law notary mentioned sub 5 the purchase price of the Facility and the Produc- tion Assets, increased by any and all costs and expen- ses connected to the transfer thereof and decreased by any amount owed by Centocor to Lilly, pursuant to this Agreement and the Amendment, including but not limited to the amount for which Centocor may become indebted to Lilly pursuant to paragraph 8 hereof. The aforesaid payment shall be made by Lilly with the instruction that upon the execution of the notarial deed of sale and transfer of the Facility and the private deed of sale and transfer of the Production Assets, the civil law notary shall pay out of the aforesaid amount (i) the notarial fees and the transfer tax and any other expenses due with respect to the transfer of the Facility to the civil law notary and the tax author- ities respectively, and (ii) the amount of indebted- ness under the facilities, for which the first mort- gage on the leasehold ownership referred to below under 9 a was vested, to the mortgagee thereof and (iii) the amount of indebtedness for which a feasible higher ranking right of pledge on the Production Assets is a security and (iv) the remaining amount to Centocor as net purchase price for the Facility. 7. Centocor irrevocably agrees and undertakes to co- operate to the sale and transfer of the Facility and the Production Assets pursuant to the Option and to do everything necessary and to sign and execute all -5- deeds, instruments and documents to effect and com- plete such sale and transfer. As integral part of what has been agreed in this Option Agreement between Centocor and Lilly, Centocor hereby grants to Lilly an irrevocable power of attorney, with the right of substitution, for and on behalf of Centocor: a. to transfer the legal ownership of the Facility and the Production Assets as provided above, subject to the terms and conditions of this Agreement; b. to encumber the facilities and the Production Assets with a right of mortgage and/or pledge as the case may be, according to the Deed of Mort- gage and the Deed of Pledge attached hereto as Exhibit G and H respectively; c. in general to fulfil all obligations undertaken by Centocor towards Lilly according to the terms and conditions of this Agreement, the Deed of Mortgage and the Deed of Pledge. With respect to the aforementioned irrevocable power of attorney the following will apply: i the irrevocable power of attorney will operate externally so that revocation will therefore have no legal effect whatsoever; ii the irrevocable power of attorney will continue in effect after the dissolution or liquidation of Centocor; iii the power of authority shall lapse upon the termination of the Option. 8. In the event Centocor would fail to duly and timely honour and perform its obligation pursuant to this Option Agreement it shall be obliged to indemnify Lilly for any and all damage, cost and expenses which Lilly and its affiliates will suffer as a result of -6- such failure and it shall forfeit an immediately payable penalty to Lilly for reason of such failure, the aggregate amount of such indemnity and penalty for purposes of this Option Agreement shall be fixed at Dfl. (**) , notwithstanding Lilly's right to claim any actual damage suffered in excess thereof and not withstanding Lilly's right to demand proper fulfillment of the obligations of Centocor pursuant to this Option Agreement. 9. As security for the due and punctual performance of its obligation pursuant to this Option Agreement, Centocor agrees to grant to Lilly: a. a (second) right of mortgage on the Facility, which shall be provided for in a notarial deed of mortgage substantially in the form of Exhibit G hereto to be executed before notary Mr. P.A.W. van Buren in Amsterdam; b. a (second) right of pledge on the Production Assets, but only to the extent that Centocor can pledge such Production Assets. Centocor under- takes that it shall make all efforts which may be reasonably required from Centocor to obtain the consent of third parties necessary to establish the right of pledge of one or more of the Produc- tion Assets, which shall be provided for in a deed of pledge substantially in the form of Exhibit H. Furthermore Centocor agrees neither to grant any other right of mortgage on the Facility nor to grant any other right of pledge on the Production Assets, nor to grant any lien, encumbrance, usufruct or other right in rem with respect to the Facility and the Production Assets, without the prior written consent of Lilly, which shall not be unreasonably withheld. -7- 10. Centocor hereby represents and warrants to Lilly that: a. it has all necessary power and authority to enter into and perform its obligations pursuant to this Option Agreement; b. all necessary corporate and shareholder's actions have been taken to authorize the entering into, execution and performance by Centocor of this Option Agreement and its obligations thereunder; c. it has obtained all necessary approvals, permits, licenses and consents as are necessary to enter into, execute and perform this Option Agreement; d. it has full title of leasehold ownership to the Facility (as provided in a notarial deed executed on 8 August 1985 by Mr. R. Gaarlandt-Meiners, civil law notary in Leiden, a copy of which is attached as Exhibit X) and full title of the Production Assets; e. the leasehold ownership of the Facility is free and clear of any mortgage, attachment or other encumbrances, except for a first mortgage in favour of ABN AMRO Bank for an amount of Dfl. 17.500.000,- and except for such easements, covenants and obligations, as are mentioned in the notarial deed of referred to in paragraph d above; f. the Production Assets are free and clear of any right of pledge, attachment or other encumbrance, except for a first right of pledge vested in favour of ABN-AMRO Bank N.V.; -8- g. it shall not sell, lease or dispose of the lease- hold ownership of the Facility without prior consent of Lilly, nor shall it sell, lease or dispose of any of the Production Assets unless provided otherwise in the Deed of Pledge; h. ABN AMRO Bank consented to the mortgage and the right of pledge, referred to sub 9, being estab- lished, which is evidenced by a letter, a copy of which is hereto attached as Exhibit J; i. the entering into, execution and performance of this Option Agreement does not breach or conflict with or result in the default of any agreement, commitment, undertaking, option or obligation to which Centocor is a party or to which it is bound. Where in this paragraph 10 reference is made of the Option Agreement, this shall include the Deed of Mortgage and the Deed of Pledge, attached hereto as Exhibit G and H respectively. 11. This Option Agreement supersedes the option agreement dated 29 June 1993, mentioned in the heading of this deed. 12. This agreement has been construed in accordance with and shall be governed by the laws of the Netherlands. Any dispute, arising out or in connection with this agreement or the performance thereof, shall be referred to the District Court of Amsterdam. -9- Done and executed in Amsterdam on August 20, 1993 /s/ Mark P. Moran /s/ John J. Kaiser -------------------- ------------------------ CENTOCOR B.V. ELI LILLY NEDERLAND B.V. by: Mark P. Moran, by: J. Kaiser managing director Director of Pharmaceuticals /s/ R. Quik ------------------------ ELI LILLY NEDERLAND B.V. by: R. Quik Medical Director -10- EX-10.37 4 DEED OF MORTGAGE English translation of ---------------------- D E E D O F M O R T G A G E ----------------------------- (Dutch version executed on August 26, 1993) Today, the twenty-sixth of August nineteen hundred and ninety-three, appeared before me, Peter Anton Willem van Buren, civil law notary in Amsterdam:------------------ 1. Mark Patrick Moran, manager, residing in 1012 NG Amsterdam, Nieuwe Nieuwstraat 71, born in Dublin, (Ireland), on the sixteenth of April nineteen hun- dred and sixty-two, married, acting in this matter in his capacity of managing director of CENTOCOR B.V., a closed company with limited liability with statutory seat in Leiden and offices in 2333 CB Leiden, EinsteinWeg 101, and as such representing this company, ----------------------------------- hereinafter to be referred to as: "Centocor"------ 2. Jan Bouwe de Snayer, assistant civil law notary, residing at Amsterdam, Van Woustraat 68, born at Dirksland on the twenty-first of May nineteen hundred and sixty, unmarried, acting in this matter as proxy of ELI LILLY NEDERLAND B.V., a closed company with limited liability with statutory seat in Nieuwegein and offices at 3431 HA Nieuwegein, Raadstede 15, and as such representing this com- pany, hereinafter referred to as: "Lilly". -------- The appearers, acting in their aforementioned capacities, declare:------------------------------------------------ Option Agreement.--------------------------------------- - ---------------- On twenty-sixth of August nineteen hundred and ninety- three Centocor and Lilly concluded an Option Agreement ("the Option Agreement"), pursuant to which among other things:------------------------------------------------- a. Centocor has agreed to grant to Lilly an option to purchase the research and manufacturing facilities of Centocor B.V., situated at Einsteinweg 101 in Leiden;-------------------------------------------- b. as security for the due and punctual performance of Centocor's obligations under the Option Agreement, Centocor and Lilly have agreed that Lilly shall acquire a (second) right of mortgage on such research and manufacturing facilities.------------- Grant of mortgage and right of pledge.------------------ - ------------------------------------- Pursuant to the Option Agreement, Centocor grants to Lilly a right of mortgage up to an amount of ten million Netherlands guilders (NLG 10,000,000), which right of mortgage Lilly accepts, on the leasehold property situ- ated at Einsteinweg 101 in Leiden, registered in the cadaster of the municipality of Leiden under section X number 3879, measuring twelve centiares and number 3880 measuring eighty-nine ares and twenty-five centieares, including all rights of Centocor with respect to the buildings on the land, comprising a research and manu- facturing facility, locally known as Einsteinweg 101 in Leiden. Such leasehold property was acquired by Centocor (at the time of acquisition named: Centocor Europe B.V.) by deed of establishment of a leasehold property right dated the ninth of August nineteen hundred and eighty- five, and registered at the Governmental offices of the Land Register and Public Register in The Hague on the twelfth of August nineteen hundred and eighty-five in section 7194, number 67. -------------------------------- The leasehold property mentioned in the preceding sen- tence is not encumbered with any mortgage other than a mortgage in favour of ABN AMRO Bank N.V. up to an amount of seventeen million five hundred thousand Netherlands guilders (NLG 17,500,000).------------------------------ Centocor herewith establishes on behalf of Lilly a right of pledge on all assets which are destined to serve durably the leasehold property and all machinery or tools destined to be used in carrying out the production of CentoRx by Centocor in the leasehold property, as -2- referred to in article 2:254 of the Netherlands Civil Code, which right of pledge Lilly accepts.--------------- Purpose of mortgage and pledge.-------------------------- - ------------------------------ The right of mortgage and right of pledge are a security for the due and punctual performance by Centocor of its obligations pursuant to the Option Agreement.------------ Terms and conditions.------------------------------------ - -------------------- The mortgage mentioned above is granted subject to the following terms and conditions:------------------------- 1. Without the express written consent of Lilly, Centocor may not encumber the leasehold property with a further mortgage.--------------------------- 2. If Centocor seriously fails in performing its obligations to Lilly, Lilly shall be entitled to take over the administration of the leasehold property with the authorization of the President of the District Court of The Hague. Lilly shall be entitled to take possession of the property if necessary or urgently desirable for purposes of execution (foreclosure) of the rights of mortgage.- 3. Centocor hereby waives its rights, mentioned in article 3:266 of the Netherlands Civil Code.------- 4. Without the express written consent of Lilly the leasehold property may not be let and no advance payments or rent installments may be contracted or accepted, and the right to rents may not be aliena- ted, pledged or encumbered otherwise.-------------- 5. Without the express consent of Lilly the furnis- hing, appearance and use of the leasehold property may not be changed;-------------------------------- 6. The cost of this mortgage deed shall be for the account of Centocor.------------------------------- 7. For the implementation of this deed parties hereto chose as their domicile the office of the civil law notary executing this deed.------------------------ The proxy of Lilly to the appearer mentioned sub 2 of the head of this deed is evidenced by a non notarial -3- instrument which is attached to this deed.--------------- The existence of such proxy is evidenced sufficiently to me, notary.---------------------------------------------- This deed is executed in Amsterdam at the time shown at the head hereof.----------------------------------------- After the substance of this deed has been stated to the appearers, they unanimously declared to have noted the contents thereof and not to insist on it being read out in full. Immediately after those parts of the deed that the law requires to be read out have been read out, this deed is signed by the appearers, who are known to me, notary, and by me, notary, at seventeen hundred hours, fifteen minutes.----------------------------------------- /s/ M.P. Moran /s/ J.B. de Snayer - ------------------- ------------------------ ISSUED FOR TRUE COPY: --------------------- /s/ P.A.W. van Buren --------------------- The undersigned, Peter Anton Willem Van Buren, civil law notary in Amsterdam, herewith on behalf of the Mortgagee in the above mentioned deed declares to issue the state- ments on behalf of a mortgage by a civil law notary referred to in a notarial deed, deposited at the clerk's office of the district Court in the Hague on December 20, 1991, number 175/1991. Amsterdam, September 10, 1993. /s/ P.A.W. van Buren - -------------------- This document is a fair and accurate English translation of a Deed of Mortgage which was written and executed in Dutch. Centocor, Inc. By: /s/ George D. Hobbs --------------------- George D. Hobbs Vice President, Secretary and Corporate Counsel -4- EX-10.38 5 DEED OF PLEDGE English Translation of ---------------------- D E E D O F P L E D G E ------------------------- (Dutch Version executed on Augsut 26, 1993) Today, the twenty-sixth of August nineteen hundred and ninety-three, appeared before me, Peter Anton Willem van Buren, civil law notary in Amsterdam:--------------------- 1. Mark Patrick Moran, manager, residing in 1012 NG Amsterdam, Nieuwe Nieuwstraat 71, born in Dublin, Ireland, on the sixteenth of April nineteen hundred and sixty-two, married, acting in this matter in his capacity of managing director of CENTOCOR B.V., a closed company with limited liability with statutory seat in Leiden and offices in 2333 CB Leiden, Ein- steinweg 101, and as such representing this company, hereinafter to be referred to as: "Centocor";--------- 2. Jan Bouwe de Snayer, assistant civil law notary, residing at Amsterdam, Van Woustraat 68, born at Dirksland on the twenty-first of May nineteen hundred and sixty, unmarried, acting in this matter as proxy of ELI LILLY NEDERLAND B.V., a closed company with limited liability with statutory seat in Nieuwegein and offices at 3431 HA Nieuwegein, Raadstede 15, and as such representing this company, hereinafter referred to as: "Lilly". ----------------------------- The appearers, acting in their aforementioned capacities, consider that on the twenty-sixth of August nineteen - -------- hundred and ninety-three Centocor and Lilly concluded an Option Agreement ("the Option Agreement"), pursuant to which among other things:-------------------------------- a. Centocor agreed to grant Lilly an option to purchase the research and manufacturing facilities of Centoc- or B.V., situated at Einsteinweg 101 in Leiden ("the Facility);-------------------------------------------- b. Centocor granted to Lilly an option right to purchase all of Centocor's equipment, inventory, tools, docu- mentation and all other assets required at any time to continue the production of CentoRx carried out in the Facility by Centocor (the "Production Assets"), including but not limited to the assets which shall be described in Exhibit F, mentioned sub 1 here- after;------------------------------------------------ c. Centocor agreed to grant Lilly a (second) right of pledge on the Production Assets, to the extent that the nature of such assets so permits,----------------- and declare that Centocor and Lilly agree:----------------- ------- 1. Centocor herewith establishes a right of pledge in favor of Lilly according to the provisions of article 3:237 Netherlands Civil Code on all of Centocor's equipment, inventory, tools, documentation and all other assets required at any time to continue the production of CentoRx carried out in the Facility by Centocor. Such right of pledge is established on all Production Assets presently owned by Centocor as well as all Production Assets which Centocor shall acquire at any time in the future. Within one week after the execution of this Deed of Pledge Centocor shall prepare and submit to Lilly two original copies of a list describing the Production Assets as complete and accurate as possible, which list shall be signed on behalf of Centocor. The Produciton Assets shall include but shall not be limited to the assets mentioned on such lists. After the lists have been approved by Lilly and signed on behalf of Lilly, one copy thereof shall be attached to the Option Agree- ment as Exhibit F, and the other copy shall be registered pursuant to the provisions sub 2 and 3.-- 2. Upon the request of Lilly, Centocor shall provide Lilly with an updated list of all production Assets that are subject to the right of pledge as per a date not earlier than one month before the date of Lilly's request. Failure to include any Production Assets on such updated list shall not affect the right of -2- pledge created by this Deed on such assets.----------- 3. The updated list mentioned sub 2 shall be registered with reference to this Deed with the Netherlands Tax Authorities (in Dutch: zal worden geregistreerd) by Centocor or Lilly, as the case may be.---------------- 4. Centocor hereby represents and warrants to Lilly that:------------------------------------------------- a. Centocor is authorized to establish the right of pledge over the Production Assets;----------- b. none of the Production Assets is subject to any other right in rem, except a first right of pledge established on behalf of ABN AMRO Bank N.V.------------------------------------------- 5. The right of pledge over the Production Assets, referred to sub 1, is granted as further security for the due and punctual performance by Centocor of all its obligations pursuant to the Option Agreement.----- 6. Centocor is authorized to use the pledged Production Assets, provided such use is within the normal course of business of Centocor.----------------------------- 7. Centocor shall carefully use and maintain the pledged Production Assets and shall keep such Assets in good order.----------------------------------------------- All costs relating to the use and maintenance of the Production Assets are for the account of Centocor. If Centocor is in default with its obligations to proper- ly maintain the Production Assets, Lilly is author- ized to take care of this for the account of Centocor.--------------------------------------------- 8. Centocor shall be authorized to dispose of the pledged Production Assets, provided such disposal is within the normal course of Centocor's business.------------ 9. Centocor undertakes towards Lilly to properly insure the Production Assets and to keep such Assets insured. Centocor shall forthwith inform Lilly of the terms and conditions of such insurance.--------------- If Centocor is in default with its obligations to -3- insure the Production Assets or to continue such insurance Lilly is entitled thereto itself for the account of Centocor.-------------------------------- The insurance documents shall be handed over to Lilly. Upon a request of Lilly to that effect, Centocor shall provide Lilly with a copy of the documents evidencing payment of the insurance pre- miums.----------------------------------------------- Centocor hereby establishes in favor of Lilly a right of pledge of all of Centocor's rights pursuant to the insurance agreements concluded with respect to the Production Assets.---------------------------------- 10. Centocor is obliged to allow a representative of Lilly to enter the premises of Centocor to inspect the Production Assets. Such inspection shall be made upon a two days notice unless there are urgent circumstances which, in Lilly's opinion, justify immediate access.----------------------------------- 11. If Centocor is in default with its obligations pursu- ant to this deed of pledge or the Option Agreement, or if Lilly has good reason to fear that a situation of default will exist, Lilly is authorized to demand that the pledged Production Assets shall be brought under the control of Lilly or of a third person to be designated by Lilly, subject to the provisions of article 3:237 Netherlands Civil Code.----------------- 12. Centocor shall forthwith provide Lilly with all information concerning third parties claims with respect to the Production Assets. Centocor hereby grants to Lilly an irrevocable power of attorney authorizing Lilly to undertake any action necessary with respect to the creation and continuation of the right of second pledge contemplated herein on Centocor's behalf including but not limited to an authorization to register this right of second pledge on Centocor's behalf and in favor of Lilly with any governmental or non-governmental authority.--------- -4- 13. The costs of this deed shall be for the account of Centocor.-------------------------------------------- 14. The agreement laid down in this deed has been con- trued in accordance with and shall be governed by the laws of the Netherlands. Any dispute, arising out or in connection with this agreement or the perform- ance thereof, shall be referred to the District Court of Amsterdam.--------------------------------------- The proxy of Lilly to the appearer mentioned sub 2 of the head of this deed is evidenced by a non notarial instru- ment which is attached to a deed of mortgage executed this day before me, notary.------------------------------------ The existence of such proxy is evidenced sufficiently to me, notary.------------------------------------------------ This deed is executed in Amsterdam at the time shown at the head hereof.------------------------------------------ After the substance of this deed has been stated to the appearers, they unanimously declared to have noted the contents thereof and not to insist on it being read out in full. Immediately after those parts of the deed that the law requires to be read out have been read out, this deed is signed by the appearers, who are known to me, notary, and by me, notary, on seventeenhundred hours and twenty minutes.--------------------------------------------------- ISSUED FOR TRUE COPY: --------------------- /s/ M.P. Moran ---------------------- /s/ J.B. de Snayer ---------------------- /s/ P. A. W. van Buren ---------------------- This document is a fair and accurate English translation of a Deed of Pledge which was written and executed in Dutch. Centocor, Inc. By: /s/ George D. Hobbs ------------------- George D. Hobbs Vice President, Secretary and Corporate Coundsel -5- EX-10.4 6 1983 RESTRICTED COMMON STOCK AWARD PLAN CENTOCOR, INC. 1983 RESTRICTED COMMON STOCK AWARD PLAN (as amended December 15, 1993) 1. Purpose. The purpose of this 1983 Restricted Common Stock Award Plan (the ------- "Plan") is to reward selected eligible employees of Centocor, Inc. (the "Company") and its majority-owned subsidiaries ("Subsidiaries") for their past services and to provide an incentive for their continued service to the Company and its Subsidiaries by awarding them shares of Common Stock, par value $0.01 per share, of the Company (the "Shares"). 2. Eligibility. Eligible participants shall be limited to employees of the ----------- Company or any of its Subsidiaries who have been regularly and continuously employed on a full-time basis by the Company or any Subsidiary of the Company for at least four months immediately prior to the date of the award. 3. Shares. No more than one million (1,000,000) Shares may be issued under ------ the Plan. This number shall be adjusted if the number of outstanding Shares of the Company is increased or reduced by split-up, reclassification, stock dividend or the like. Shares which have been forfeited pursuant to the terms of this Plan may again be awarded pursuant to the Plan. 4. Awards; Forfeiture. The Board is authorized to award shares to selected ------------------ eligible employees pursuant to this Plan. Such Shares will be subject to forfeiture, in whole or in part, if the recipient of the award ceases to be an employee of the Company or any of its Subsidiaries within certain specified periods of time. The number of Shares, if any, awarded in each year, the eligible employees to whom awards are made, the number of Shares awarded to each eligible employee and the terms under which such Shares will be forfeited to the Company shall be wholly within the discretion of the Board of Directors, subject to the overall limit prescribed in Section 3 and further subject to the requirement that the total number of Shares awarded under the Plan during any fiscal year may not exceed one percent of the number of Shares then outstanding. Members of the Board who are eligible to participate in the Plan may vote on matters affecting the administration of the Plan, except that no such member shall act upon the award of Shares under the Plan to himself, but any member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the award of Shares to him. No award may be made to an employee who is a director of the Company unless a majority of the Board of Directors and a majority of the directors acting in the matter are not, and have not within one year prior thereto been, eligible for an award under the Plan. 5. Award Terms. Subject to the limitations prescribed in Section 4 above, an ----------- award made under this Plan shall be on the terms stated in clauses (a) through (c) below. The Board may specify additional terms not inconsistent with this Plan by rules of general application or by specific direction in connection with a particular award or group of awards. (a) The award of Shares pursuant to this Plan shall be evidenced by a Common Stock Award Certificate in the form attached as Exhibit A to this Plan. (b) The Common Stock Award Certificate will specify the number of Shares awarded pursuant to the Plan and the date or dates on which such Shares, or portions thereof, will cease to be subject to forfeiture. If a person ceases to be an employee of the Company or any of its Subsidiaries for any reason, including without limitation, death, disability or termination of employment, with or without cause, all Shares that remain subject to forfeiture will be forfeited to the Company. If a person continues to be regularly employed by the Company or any of its Subsidiaries on a date specified in such person's Common Stock Award Certificate as a date on which Shares will cease to be subject to forfeiture, a stock certificate or stock certificates representing the designated number of shares shall be issued and registered in the name of the recipient or, if previously issued and registered in the name of the recipient and held in escrow pursuant to Section 6 below, shall be released from escrow and delivered to the recipient. (c) In the event that the Company is succeeded by another company in a reorganization, merger, consolidation or acquisition of substantially all the assets or capital stock, the successor company shall assume the Company's obligations with respect to Shares remaining subject to forfeiture with only such modification as may be necessary so that the securities, cash or other property received in such reorganization, merger, consolidation or acquisition of property or stock by holders of Shares not subject to forfeiture shall be issued to the recipient on the same terms as the Shares. 6. Escrow Option. Each recipient of an award pursuant to this Plan shall have ------------- the option of having a stock certificate or stock certificates representing the Shares so awarded issued and registered in his name at the time of the award, provided that the award shall be subject to the recipient's execution of an escrow agreement, in form and 2 substance satisfactory to the Company, which provides that the stock certificate or stock certificates representing Shares awarded under the Plan will be held in escrow by the Company or by an escrow agent designated by the Board of Directors of the Company for so long as such Shares are subject to forfeiture pursuant to the terms of this Plan and the Common Stock Award Certificate. On the dates set forth in each individual Common Stock Award Certificate on which the designated number of Shares cease to be subject to forfeiture, such Shares shall be released from escrow. In the event that the Company is succeeded by another company in a reorganization, merger, consolidation or acquisition of substantially all the assets or capital stock, the successor company shall assume the Company's obligations with respect to Shares being held in escrow pursuant hereto with only such modification as may be necessary so that the securities, cash or other property received in such reorganization, merger, consolidation or acquisition of property or stock by holders of Shares not subject to forfeiture shall be held in escrow on the same terms as the Shares. 7. Common Stock Subject to Award. The Shares awarded under this Plan may be ----------------------------- unissued shares or treasury shares, including Shares bought on the open market. Shares awarded pursuant to the Plan shall be validly issued, fully paid and nonassessable. 8. Nonassignment. Any award made hereunder, the rights and privileges ------------- conferred hereby and any Shares issued pursuant to an award hereunder for so long as such Shares remain subject to forfeiture pursuant to the terms of this Plan and the Common Stock Award Certificate shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of such award, right or privilege or Shares subject to forfeiture contrary to the provisions hereof, or upon the levy of any attachment or similar process thereon, such award and the rights and privileges conferred hereby shall immediately terminate and the Shares subject to forfeiture at such time shall be immediately forfeited to the Company. 9. Rights of Employee in Shares. A participating employee shall not be deemed ---------------------------- to be the holder of, or to have the rights of a holder with respect to, any Shares awarded hereunder unless and until such Shares are issued to him and he has received a certificate therefor. As long as a participating employee continues to be regularly employed by the Company or any Subsidiary of the Company, he shall be deemed to be the holder of, and may exercise all of the rights of a record owner of the 3 Shares awarded to him which are being held in escrow (other than the right to transfer, convey, alienate or encumber the Shares, except in a connection with a transaction described in, and subject to the provisions of, Section 5(c) hereof) including, without limitation, the right to vote such Shares and the right to receive all cash dividends on the Shares; provided, however, that upon adoption by the shareholders of the Company of a plan of dissolution or liquidation of the Company, the Shares then held in escrow pursuant hereto shall be forfeited to the Company and the employee shall have no right to participate in any distribution in connection with such dissolution or liquidation and shall have no further rights in respect of the Shares. In the event of a dividend or distribution payable in stock or other property or a reclassification or split-up, the shares or other property issued or declared on account of Shares held in escrow shall be subject to the same terms and conditions relating to forfeiture and escrow as the Shares to which they relate. 10. Income Taxes. The Company anticipates that participation in the Plan will ------------ have the following Federal income tax consequences. Because the Shares awarded under the Plan are subject to forfeiture, receipt of the award should not be a taxable event to the employee for Federal income tax purposes. Rather, the employee should be deemed to receive compensation taxable as ordinary income on the date forfeiture provisions lapse in an amount equal to the fair market value of the Shares on such date. Alternatively, an employee who elects to have the Shares awarded under the Plan held in escrow pursuant to Section 6 above until the forfeiture provisions lapse should be able to elect under Internal Revenue Code Section 83(b) to include the value of the Shares in his income at the time the shares are issued. If such an election is properly made, any subsequent appreciation in the value of the Shares should not be taxable as compensation to the employee for Federal income tax purposes, but instead should be taxable as capital gain when and if the Shares are sold. The Company shall have the right to reduce the number of Shares otherwise required to be issued when such Shares cease to be subject to forfeiture, or alternatively to accept tenders of Shares issued and held in escrow as permitted hereby, in an amount which would have a fair market value on the date such Shares cease to be subject to forfeiture, or on the date of award if the employee has filed an election under Section 83(b) of the Internal Revenue Code to have the Shares taxed at the time of such award, equal to all Federal, state, city or other taxes as shall be required to be withheld by the Company pursuant to any statute or other governmental regulation or ruling. In 4 connection with such withholding, the Company may make any such arrangements as are consistent with the Plan as it may deem appropriate. 11. Plan and Award Not to Affect Employment. Neither this Plan nor any award --------------------------------------- hereunder shall confer upon any eligible employee any right to continue in the employ of the Company or any of its Subsidiaries. 12. Amendment of Plan. The Board of Directors may make any amendments to the ----------------- Plan which it deems necessary or advisable, provided that the Board of Directors may seek shareholder approval of an amendment if determined to be required by or advisable under regulations of the Securities and Exchange Commission or the Internal Revenue Services, the rules of any stock exchange or system on which the Company's Stock is listed or other applicable law or regulation. 13. Notices. Any notice required or permitted hereunder shall be sufficiently ------- given only if sent by registered or certified mail, postage prepaid, addressed to the Company, 244 Great Valley Parkway, Malvern, Pennsylvania 19355, and to the participating employee at the address on file with the Company on the date an award is made hereunder, or to such other address as either party may hereafter designate in writing by notice similarly given by one party to the other. 14. Successors. The Plan shall be binding upon and inure to the benefit of ---------- any successor, successors or assigns of the Company. 15. Severability. If any part of this Plan shall be determined to be invalid ------------ or void in any respect, such determination shall not affect, impair, invalidate or nullify the remaining provisions of this Plan which shall continue in full force and effect. 16. Termination of the Plan. The Board of Directors may terminate this Plan ----------------------- at any time; otherwise the Plan shall terminate on December 5, 2003. Termination of the Plan shall not deprive employees of their rights under awards previously made. No award shall be made after the date of termination of this Plan. 17. Additional Terms. The Board of Directors may impose such additional terms ---------------- and conditions upon the award of Shares under this Plan as the Board determines at the time it authorizes such awards. 5 18. Administration of Plan. This Plan shall be administered by the Board of ---------------------- Directors. The Board may make such rules and establish such procedures as it deems appropriate for the administration of the Plan. In the event of any disagreement as to the interpretation of the Plan or any rule or procedure thereunder, the decision of the Board shall be final and binding upon all persons in interest. 6 CENTOCOR, INC. COMMON STOCK AWARD CERTIFICATE This certifies that, pursuant to the 1983 Restricted Common Stock Award Plan of Centocor, Inc., the Board of Directors has awarded shares of Common Stock of Centocor, Inc. as follows: Name and Address Position of of Employee: Employee: Number of Shares: Date on which forfeiture provisions lapse: The award is subject to all the terms and conditions of the aforementioned Plan, a copy of which is attached to this certificate. Dated: --------------------- CENTOCOR, INC. By: ------------------------ 7 EX-12 7 COMPUTATION OF RATIOS EXHIBIT 12 CENTOCOR, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATION OF RATIOS RATIO OF EARNINGS TO FIXED CHARGES (in thousands)
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- EARNINGS (LOSS): Pretax income (loss) ($74,379) ($194,146) ($195,555) ($134,380) $ 256 PLUS: Fixed charges (below) 22,820 24,046 14,893 3,254 2,114 LESS: Interest capitalized - - 800 380 - -- -- --- --- -- ADJUSTED EARNINGS (LOSS) ($51,559) ($170,100) ($181,462) ($131,506) $2,370 ======== ========= ========= ========= ====== FIXED CHARGES: Rent expense deemed interest $ 1,987 $ 3,537 $ 2,347 $1,019 $ 563 Interest expense 20,087 19,798 11,354 1,855 1,551 Amortization of debt issuance cost 746 711 392 - - Interest capitalized - - 800 380 - -- -- --- --- -- TOTAL FIXED CHARGES $22,820 $24,046 $14,893 $3,254 $2,114 ======= ======= ======= ====== ====== RATIO * * * * 1.12 == == == == ====
* Adjusted earnings did not cover fixed charges for the years ended December 31, 1993, 1992, 1991, and 1990 by $74,379,000, $194,146,000, $196,355,000 and $134,760,000, respectively. EX-21 8 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 CENTOCOR, INC. AND SUBSIDIARIES
Jurisdiction of Incorporation Subsidiaries of the Registrant or Organization ------------------------------ --------------- 1. Centocor B.V. The Netherlands 2. Centocor Delaware, Inc. Delaware 3. Centocor Development Corporation I Delaware 4. Centocor Development Corporation II Delaware 5. Centocor Development Corporation III Delaware 6. Centocor FSC, Ltd. U.S. Virgin Islands 7. Centocor Property Management Corp. Delaware 8. Centocor Property Management Corp. II Delaware 9. Centocor Property Management Corp. III Delaware 10. Centocor Ventures III Delaware 11. First Valley Insurance Company Vermont 12. Centocor U.K. Limited United Kingdom 13. Nippon Centocor K.K. Japan 14. Tocor, Inc. Delaware 15. Centocor (BVI), Inc. British Virgin Islands
EX-23 9 CONSENT OF KPMG PEAT MARWICK Exhibit 23 Consent of Independent Auditors ------------------------------- The Board of Directors Centocor, Inc.: We consent to incorporation by reference in Registration Nos. 33-35729, 33-38110, 33-16286, 33-7311, 33-23481, 33-28975, 33-26810, 33-44231, 33-44072, and 33-29141 on Form S-3 in Registration Statement No. 33-51421 on Form S-4, and in Registration Statement Nos. 33-35731, 2-86486, 33-35730, 33-00167, 33-16285, 33-16284 and 33-23480 on Form S-8 of Centocor, Inc. of our report dated March 11, 1994, relating to the consolidated balance sheets of Centocor, Inc. and subsidiaries as December 31, 1993 and 1992 and the related consolidated statements of operations, shareholders' equity and cash flows and related consolidated financial statement schedules for each of the years in the three- year period ended December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of Centocor, Inc.; and of our report dated March 11, 1994 relating to the balance sheets of Centocor Partners III, L.P. as of December 31, 1993 and 1992 and the related statements of operations, partners' capital and cash flows for each of the years in the three-year period ended December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of Centocor, Inc. and which report contains an explanatory paragraph that states that the continuation of the product research programs by the Partnership is dependent upon the general partner continuing to provide funding and/or the ability of the Partnership to obtain funding from another source. /s/ KPMG Peat Marwick Philadelphia, Pennsylvania March 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----